Roluke Pty Ltd & Anor v Lamaro Consultants Pty Ltd & Anor

Roluke Pty Ltd - first plaintiff PARTIES : Scotts Motors Artarmon Pty Ltd - second defendant Lamaro Consultants Pty Ltd - first defendant Anthony Vincent Lamaro - second defendant

COUNSEL : J S Drummond - plaintiffs D M Loewenstein - defendants

SOLICITORS : Booth & Boorman - plaintiffs Curwood & Partners - defendants

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TECHNOLOGY & CONSTRUCTION LIST

55020/03 Roluke Pty Ltd & Anor v Lamaro Consultants Pty Ltd & Anor JUDGMENT 1 His Honour: The remaining question in these proceedings is the appropriate order to be made for costs. 2 In my reasons of 17 April 2007 I held that the plaintiffs were entitled to an award of damages which included the costs of installation of the Emerclad membrane and asphalt screed, and an amount for the costs of one replacement thereof, and amounts for various items of past damages. Subsequently the parties prepared a schedule of damages with regard to my reasons. The schedule provided the basis for the award for the plaintiffs in the sum of $912,245.00 for which I gave judgment on 18 May 2007. 3 The defendants seek an order that the plaintiffs pay their costs on an indemnity basis from 17 September 2005 to date of judgment, alternatively on a party/party basis, after the making by them of an offer in a Calderbank letter dated 16 September 2005. It is conceded that the defendants should pay the plaintiffs' costs of the proceedings on a party/party basis up to 17 September 2005. 4 The letter was in the following terms: "We refer to the proceedings commenced by your clients against our client, Lamaro Consultants Pty Limited and Vince Lamaro ("Lamaro") issued in the Supreme Court and listed for trial on 7 November 2005. Contrary to the assertions contained in your Statement of Claim, our client was not retained to provide supervision of the works including ensuring whether or not a membrane was installed on the roof 3 slab. In fact, as the evidence has devolved, your client assumed those duties and responsibilities itself. Consistent with this, our client's duty ceased upon the completion of the level 3 slab structure and its certification of that slab. It is our contention therefore, that our client was never responsible for the provision of a membrane and will not be held liable for any damages in respect of that component of your client's claim including the installation of a roof. In the circumstances, we consider that your client will bear a significant part of it's (sic) alleged loss itself. Our assessment of the loss our client will bear if at all, is well below that which you have claimed. Noting the imminence of the hearing, and our views in this matter, we have in order to settle the matter, instructions to offer your client $1,000,000.00 plus costs as agreed or assessed on the basis that your client dismiss its claim against Lamaro. If this offer is not accepted and the matter proceeds to hearing, Lamaro reserves the right to tender this letter to the Court in relation to any argument as to costs. This offer is made pursuant to the principles stated in Calderbank v Calderbank [1975] 3 AOL ER 333 and pursuant to s 131 of the Evidence Act . This offer shall remain open until 4.00pm on Monday 26 September 2005 after which, it will lapse." 5 The offer was not accepted. The plaintiffs made a counter-offer in a Calderbank letter dated 26 September 2005. Relevantly, it included the following: "The offer contained in letter date 16 September 2005 is rejected. The Plaintiffs do not concede the various assertions made in that letter and are of the view that the evidence of the Plaintiffs' expert and lay witnesses will be fully accepted by the presiding judge. Notwithstanding we are instructed to make a first and only counter offer of settlement in favour of the Plaintiffs in the sum of $1,600,000.00 plus costs as agreed or assessed. This offer is not subject to further negotiations and if not accepted the matter will proceed to a hearing. The Plaintiffs reserve the right to tender this letter in relation to any argument as to costs. The offer is made in accordance with the principles contained in Calderbank v Calderbank and pursuant to section 131 of the Evidence Act 1995. This offer remains open until 4.00pm Tuesday 4 October 2005 after which it shall lapse."

This counter-offer was not accepted. 6 The plaintiffs opposed the orders sought by the defendants. They sought an order, under the ordinary rule, that the defendants pay their costs of the proceedings on a party/party basis, alternatively that the defendants pay their costs on a party/party basis up to 26 September 2005, and thereafter that the plaintiffs pay their own costs. The principles 7 Part 42, rule 42.1 is the basic rule that costs follow the event, unless it appears to the court that some other order should be made. The exercise of the court's discretion is to be made with regard to the overall requirements of justice in the particular case. 8 In Oshlack v Richmond River Council (1998) 193 CLR 72, McHugh, J said: " 67. The expression the "usual order as to costs" embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party . If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expense which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation. 68. As a matter of policy, one beneficial by-product of this compensatory purpose may well be to instil in a party contemplating commencing, or defending, litigation a sober realisation of the potential financial expense involved. Large scale disregard of the principle of the usual order as to costs would inevitably lead to an increase in litigation with an increased, and often unnecessary, burden on the scarce resources of the publicly funded system of justice. " 9 In Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No. 3) (1998) 30 ACSR 20, Young, J (as he then was) reviewed the principles applicable to multiple issue cases in which the successful party had lost on some separate issues. He said (p 21) that in such cases it was appropriate for the court to assess costs on each issue or make a reduction in the costs which the successful party obtains because of that party's losses on separate issues. His view was (p 22) that in this context a court does not look at issues as if they were pleader's issues, but approaches the matter with a broad brush. He pointed out (p 24): "… a judge has got to look at the matter globally and in the circumstances of each case and make an order for costs that is fair and reasonable after taking into account the general guidelines". 10 The principles which guide the approach to be taken where a plaintiff recovered less than the amount offered by a defendant under a Calderbank letter were recently reviewed in Gretton v Commonwealth of Australia [2007] NSWSC 149, by Studdert, J in which he said: "16 It is for the defendant to persuade the Court that the plaintiff acted unreasonably in rejecting its offer. It seems to me that more is required to prove the plaintiff was unreasonable than to prove that the offer which was not accepted was a reasonable offer. In a particular case a plaintiff might act reasonably in rejecting an offer which was within the possible verdict range. 17 What emerges from SMEC and from Jones v Bradley and from Leichhardt Municipal Council v Green is that all the relevant circumstances have to be considered in determining whether the plaintiff's rejection of the settlement offer was unreasonable. Rejection would be unreasonable if it occurred without any consideration or without due consideration of the offer made. Rejection of an offer would be unreasonable if the plaintiff could not reasonably hope to match the offer by proceeding to a hearing. Rejection of an offer would be unreasonable if it involved a disregard of serious problems confronting the plaintiff in establishing liability. However, none of the decisions to which I have referred has sought to define what amounts to unreasonable rejection. I instance the above circumstances as examples of situations in which an offeree would act unreasonably in not accepting an offer, but it has to be recognised that there can be no all embracing definition as to what amounts to unreasonable conduct in failing to accept an offer. All the relevant circumstances of the particular case have to be considered. … 24 Circumstances to be considered in determining whether the failure to accept the offer was unreasonable or not include the making of an assessment of the strengths and weaknesses of the plaintiff's case looking at the claim prospectively at the time the offer was made. This task is not to be determined with the benefit of hindsight."

(See also Evans Shire Council v Richardson (No. 2) [2006] NSWCA 61; Pollard v Baulderstone Hornibrook Engineering Pty Ltd & Anor (No. 2) [2007] NSWSC 486.) 11 In Crump & Ors v Equine Nutrition Systems Pty Ltd trading as Horsepower & Anor (No. 2) [2007] NSWSC 25, Hoeben, J said: "41 What (the) decisions made clear was that the reasonableness or otherwise of the refusal to accept the Calderbank offer needed to be considered by reference to the situation at the time when the offer was made and not solely by reference to the ultimate outcome of the proceedings. That kind of hindsight analysis has been expressly rejected. Whilst every case has to be considered and dealt with on its particular facts, it does not follow necessarily from an adverse outcome, that rejection of the offer was relevantly unreasonable." Procedural background 12 The proceedings were commenced by summons filed 26 May 2003 in which the plaintiffs claimed damages against the defendants in the amount of $910,000.00, including the cost of construction of a roof over level 3. In their points of defence filed 11 August 2003, the defendants generally denied liability. 13 An amended summons was filed on 16 February 2004 in which the amount of the claim for damages to rectify the building was amended to $1,765,733.00, including the cost of construction of a roof over level 3, and unspecified damages for diminution in value of the building. The defendants adhered to their denial of liability in the points of defence to the amended summons filed 26 February 2004, and in the amended points of defence filed 31 August 2005. 14 The defendants' Calderbank offer to settle for $1,000,000.00 plus costs was made on 16 September 2005, open until 26 September 2005. The plaintiffs' rejection of that offer and their Calderbank offer to settle for $1,600,000.00 plus costs were conveyed on 26 September 2005, open until 4 October 2005. 15 On 7 November 2005 the hearing commenced. The further amended summons was filed in which the amount of the claim for damages to rectify the building was amended to $2,335,792.00, and the amount of $100,000.00 was claimed for damages for diminution in value of the building. 16 From the outset it was the plaintiffs' case that by reason of the defective designs of the level 2 and level 3 slabs, the defendants were in breach of their agreement with, and in breach of their duty of care to, the plaintiffs. Eventually the defendants conceded as much. However, despite the defendants' concession that the real contest was one involving the assessment of damages only, no admission of liability was ever made. Curiously, in their written submissions of 1 June 2007 the defendants said: "9. True it is that liability remained an issue during the course of the proceedings however only in a formal sense. From the outset … the defendants by their Counsel made it clear that the primary issue for determination … was the issue of the property measure of damages." 17 In my reasons of 17 April 2007 I summarised the contest as follows: "58. The real issue in these proceedings concerns the computation of damages. The plaintiffs contended that the contract with the first defendant was one to produce a result, namely to provide drawings for the construction of a waterproof building without a membrane and topping slab. They contended that upon the application of the principles in Bellgrove v Eldridge (1954) 90 CLR 613 the appropriate measure of damages is the cost of providing them with a building which substantially conforms to the contract. Accordingly, they claim the costs of construction of a steel roof over level 3 which would provide them with a waterproof structure for the life of the building which does not require the incorporation or maintenance of a membrane or topping slab. On this basis, the claim, including amounts for past and future repairs to the slabs and membrane, for business interruption, and for diminution in value of the building is for a sum of about $2.3 million. 59. On the other hand, the defendants contended that the contract was for the provision of professional services which required the design of slabs which were waterproof so that the measure of damages should be of such amount as would put the plaintiffs in the same position as they would have been if they had not sustained the injury for which damages are claimed ( Bellgrove p 616). On this basis, they contended that the plaintiffs are entitled to the costs of installation of a membrane over the level 3 slab, and to amounts in respect of past and future repairs to the slabs, and for business interruption, in a sum of about $539,000.00." 18 In their joint report of 12 April 2006 (Ex Q) Messrs Bersten and Smee identified the appropriate membrane and screed system where no roof is to be constructed. The report evidenced their agreement for a solution which involved the application of an Emerclad membrane. This marked a review of the position earlier taken by Mr Smee who, in his report of 27 June 2005 and affidavit of 5 September 2005, had suggested three alternative options including a Sonoguard membrane, and an Emerclad membrane. 19 On 23 October 2006 Mr Plaister and Mr Bersten prepared a report on the reasonable costs for carrying out the works proposed in the report of Messrs Bersten and Smee of 12 April 2006. With the exception of the few items left for determination by the court, the defendants eventually accepted all items claimed by the plaintiffs, being Mr Bersten's assessments. Consideration 20 In my opinion the defendants' offer was a reasonable one which warranted the plaintiffs' careful consideration. 21 The defendants correctly accepted that they bore the onus of demonstrating that the plaintiffs acted unreasonably in rejecting their offer. On this issue, the submission, as I understood it, was that during the course of the proceedings, as evidenced by the amended pleadings and the counter-offer, the plaintiffs increased the amount claimed for damages yet obtained an award that was less than the amount offered by $87,755.00. It was put, in effect, that in these circumstances the outcome justified departure from the ordinary rule as to costs, and the making of the cost orders sought by the defendants. 22 The defendants' submissions must be rejected. More is required to discharge the onus than proof that the offer which was not accepted was a reasonable offer (Gretton para 16), or solely by reference to the ultimate outcome of the proceedings (Gretton para 17, Crump para 41). 23 The situation at the time the offer was rejected was that the hearing was imminent, and a considerable body of affidavit evidence had been filed and served. In the letter of 26 September 2005, in explanation of their rejection and counter-offer, the plaintiffs expressed the view that their expert and lay witnesses would be fully accepted. However, the court was not taken to any evidence to show, for example, that the plaintiffs had rejected the offer without any, or any due, consideration of it, or what the situation was at the time it was made. Indeed, the court was not taken to any material to enable it to make an assessment of the strengths and weaknesses of the plaintiffs' case looking at the claim prospectively at the time the offer was made (Gretton para 24). That no attempt was made to establish that, in the circumstances then prevailing, the plaintiffs' response was unreasonable strongly suggests that the defendants lacked the requisite evidence to do so. 24 What is required to discharge the onus of proof that rejection of a Calderbank offer was unreasonable will, of course, vary with the particular circumstances of each case. However, I am firmly of the opinion that it is not open to the court to make a finding of unreasonableness without evidence to support it (cf: e.g. Gretton para 36). In this case I was taken to none, and I do not propose to speculate. In my opinion, the defendants have failed to discharge the onus. 25 My conclusion is that it has not been shown that the plaintiffs were unreasonable in failing to accept the defendants' offer in September 2005. I decline to make the orders sought by the defendants. 26 In my opinion the approach to be taken in determining the costs question is to consider the matter overall, and to make an order which is fair and reasonable in the circumstances (Oshlack para 67). The proceedings involved numerous issues including which of several was the reasonable method of rectification of the building, and the cost of the necessary work. Although the plaintiffs were successful overall, they lost on some issues with the result that the award was substantially reduced from the amount claimed. 27 It is well accepted that it will be an appropriate exercise of the court's discretion to deprive a party of its costs in respect of an issue which it lost at trial (Fexuto p 21; Dias Aluminium Products Pty Ltd v Ullrich Aluminium Pty Ltd (No. 2) [2005] FCA 1400, para 3). An allocation of costs in a case of mixed results when neither party is wholly successful can never be done with mathematical precision and, ordinarily, a broad brush approach is to be taken (Fexuto p 22; Dodds Family Investments Pty Ltd & Anor v Lane Industries Pty Ltd & Ors (1993) 26 IPR 261, p 272). 28 A relevant consideration in the exercise of discretion is that the plaintiffs failed to establish the primary case for which they contended throughout, namely that the contract was one to produce a result, and that the reasonable method of rectification included the construction of a roof over level 3 with damages to be assessed accordingly. They also failed in their claim for damages for diminution in value of the building. It is also relevant to take into account that the plaintiffs failed in their claim that damages for the Emerclad option should be calculated with regard to future replacements and business interruption over the life of the building. The determination of these issues, to a large extent, turned on the assessment of contested expert evidence which occupied a significant part of the hearing. 29 Nevertheless, it is inappropriate in the exercise of discretion in the circumstances of this case to adopt a scoreboard approach, and to attempt to measure up points on which a party won or lost, because evidence and submissions relevant to many issues necessarily overlapped. The overriding consideration is to exercise the court's wide discretion with regard to the administration of justice in the case. Often the outcome will be one of overall impression as to where the justice lies. The exercise is usually not one of going back over the detail of the case in some artificial balancing exercise. 30 My task is to make an order which, doing the best I can by way of overall assessment, is a fair one. To reflect the plaintiffs' ultimate success, and taking into account the defendants' success in confining the award to an amount substantially less than that claimed, I propose to order the defendants to pay two thirds of the plaintiffs' costs of the proceedings on a party/party basis. Mr Smee's affidavit of 10 October 2006 31 The plaintiffs have questioned whether the affidavit of Mr David Smee of 10 October 2006, filed in court on 30 October 2006 (T p 467), was read during the hearing. Relevantly, it contained a report in which he expressed his opinion as to items of costs of proposed rectification of the building. In Schedule C thereof he stated, inter alia, his opinion that properly repaired cracks would not require repeat repair, an opinion which I accepted. It was in answer to Mr Billings's evidence that future repairs would be required and that costs thereof should be included in the assessment of damages. 32 The transcript for 30 October 2006 (p 480) shows the affidavit was read and objection was taken to the contents of Schedule C of the report. The transcript also shows that opportunity was then given to counsel to consider whether it was necessary to require Messrs Billings, Short and Smee for cross-examination (T p 483, l 30). Subsequently, counsel for the plaintiffs, Mr J S Drummond, informed the court that he did not wish to cross-examine Mr Smee (T p 485, l 11). The objection was not revived. 33 On 2 November 2006, in the course of final submissions, counsel for the defendants, Mr D M Lowenstein, referred in detail to Mr Smee's affidavit evidence of 10 October 2006, including passages from Schedule C, and reminded the court that Mr Smee had not been required for cross-examination (T p 679, l 30 - p 681). He directed attention to paras 180 and 181 of his written submissions (T p 681) which also referred to that evidence. Mr Drummond made no protest and replied directly to these submissions (T p 706). 34 In circumstances where Mr Smee was not required for cross-examination on the affidavit, and the matter was allowed to proceed without either further reference to the objection or the making of a request for a ruling on it, both the court and the defendants were entitled to assume, as they did, that the whole of the evidence in the affidavit was properly before the court. Order 35 It is ordered that the defendants pay two thirds of the plaintiffs' costs of the proceedings on a party/party basis.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.