S.H.A. Premier Constructions Pty Ltd v Niclin Constructions Pty Ltd

PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - OFFERS OF COMPROMISE, PAYMENTS INTO COURT AND SETTLEMENTS - INFORMAL OFFERS AND CALDERBANK LETTERS - UNREASONABLE REFUSAL OF OFFER - where the first respondent made a Calderbank offer - where the applicant did not accept the offer within time - where the expressed reasons why the offer should be accepted were inadequate - where the offer was open for less than 75 hours - whether the applicant acted unreasonably in not accepting the offer

Calderbank v Calderbank [1975] 3 All ER 333, cited

Hadgelias Holdings and Waight v Seirlis [2014] QCA 325, cited

Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298, cited

J & D Rigging Pty Ltd v Agripower Australia Limited [2014] QCA 23, cited

• [1] In this proceeding, the applicant sought declarations that three adjudication decisions by the second respondent pursuant to the Building Industry Fairness (Security of Payment) Act 2017 (Qld) were affected by jurisdictional error and void.
• [2] For the reasons which I expressed in S.H.A. Premier Constructions Pty Ltd v Niclin Constructions Pty Ltd [2020] QSC 307, the application failed.
• [3] The result was that the sum of $988,632.36 (being the total of the three adjudication decisions and partial interest) together with accretions, which had been paid into Court, was ordered to be paid out to the first respondent.
• [4] I have now received submissions on the question of the orders which should be made in relation to the costs of the proceeding.
• [5] The applicant accepted that costs should follow the event and submitted that the costs order should be that the applicant pay the first respondent's costs of and incidental to the application to be assessed on the standard basis.
• [6] The first respondent accepted that the applicant should be required to pay its costs on the standard basis up until 11 May 2020, but sought its costs on the indemnity basis from 12 May 2020.
• [7] The first respondent's argument rested on these propositions:

(a) on 12 May 2020, it made a Calderbank offer[1] to settle the application on these terms:

(i) within 7 days of the acceptance of the offer, the applicant pay to the first respondent the sum of $764,227.29, being the total amount awarded by the adjudicator including the adjudicator's fees, less the amounts awarded for retention in each adjudication decision, and interest;

(ii) within 2 days of acceptance of the offer, the applicant serve and file a notice of discontinuance of the application; and

(iii) each party bear its own costs to the date of the offer;

(b) it obtained an order no less favourable than the Calderbank offer; and

(c) the applicant acted unreasonably in not accepting the offer.

• [8] The relevant considerations were identified in J & D Rigging Pty Ltd v Agripower Australia Limited [2014] QCA 23 at [5] to [6] per Holmes JA and Applegarth and Boddice JJ, and in Hadgelias Holdings and Waight v Seirlis [2014] QCA 325 at [11] to [12] per Holmes JA with whom Gotterson and Morrison JJA agreed. In each case, the Queensland Court of Appeal followed the approach taken by the Victorian Court of Appeal in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435.
• [9] The following propositions may be distilled from those appellate decisions.
• [10] First, the usual rule is that where the Court orders the costs of one party to litigation to be paid by another party, the order is for assessment of those costs on the standard basis.[2]
• [11] Second, the Court will depart from the usual rule where the circumstances of the case warrant that course.[3]
• [12] Third, one feature which may justify a departure from the usual rule is the rejection of a Calderbank offer to compromise.[4] However, it is wrong to think that an offeree's rejection of a Calderbank offer gives rise to a presumption that the offeree should pay the offeror's costs on an indemnity basis if the offeree obtains a less favourable result than contained in the offer.[5] Rather, the correct approach is to consider whether the rejection of the Calderbank offer, in all the circumstances, justifies a departure from the usual rule.[6]
• [13] Fourth, the balance between the competing policy considerations of, on the one hand, appropriately encouraging settlement and, on the other, not discouraging potential litigants from bringing their disputes to the courts, is found by applying a test of "reasonableness". The policy rationale for requiring the offeree to indemnify the offeror for costs incurred after the offeree's unreasonable rejection of an offer is that, from the time of the unreasonable rejection, notionally the real cause and occasion of the litigation is the unreasonable attitude adopted by the offeree.

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

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

(c) the extent of the compromise offered;

(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.

• [15] The first respondent correctly treated a failure to accept an offer within time as subject to the principles that apply to explicit rejection of an offer. It submitted that the order it sought was appropriate because I should form the view that it was unreasonable of the applicant not to accept its offer. The applicant submitted the contrary.
• [16] Each party's argument was expressed by reference to the considerations which I have listed at [14] above.
• [17] I will address them under separate headings.

The stage of the proceeding at which the offer was received

• [18] The originating application was filed on 3 April 2020. By consent order made on 9 April 2020, Flanagan J directed the applicant to file and serve its submissions and any supporting material by 24 April 2020.
• [19] The applicant filed its affidavit material within time, but filed its outline of submissions late on 1 May 2020. By consent order made on 7 May 2020, Flanagan J set the proceeding down for hearing on 28 and 29 May 2020 and directed the first respondent to file and serve its submissions and any supporting material by 4:00pm on 18 May 2020.
• [20] The first respondent's offer was received by the applicant at 10:08am on Tuesday, 12 May 2020.

The time allowed to the offeree to consider the offer

• [21] The offer was open for acceptance until 1:00pm on Friday 15 May 2020. The first respondent submitted that was a reasonable time within which to consider the offer.
• [22] The applicant pointed out that the offer was only open for acceptance for a little less than 75 hours. It submitted, and I agree, that it was not unreasonable for it to allow the offer to elapse because that was insufficient time to consider the argument about prospects presented in the offer. That was especially so when one had regard to the fact that the applicant had not yet received the first respondent's submissions.

• [23] The first respondent offered to accept a sum which reflected the first respondent not pursuing the retention monies which had been included in the adjudication decision and the first respondent bearing its own costs. In a pecuniary sense, the offer undoubtedly reflected a discount of significance as compared to the amount the first respondent could expect to receive in the event that it was entirely successful.

The offeree's prospects of success, assessed as at the date of the offer

• [24] My judgment reveals that the applicant advanced its case for jurisdictional error by reference to three grounds, which it described in the following way:

(a) Ground 1: misconception of the nature of the adjudicator's function and misapprehension of the limits of his functions or powers;

(b) Ground 2: failure to undertake the statutory task; and

(c) Ground 3: the adjudication applications were vexatious, coupled with the absence of a necessary precondition.

• [25] The first respondent's offer articulated some reasons why each ground should fail, but the articulation there expressed did not compare favourably to the reasons expressed in my judgment. It could not be said that my judgment dismissing the application vindicated the first respondent's arguments as presented in the offer.
• [26] The weakest ground was ground 3. If it had succeeded, it would have justified conclusions that the adjudication decisions should be set aside. In my view, that ground always had poor prospects. However, it must be observed that that was so for reasons other than those which the first respondent expressed in its offer.
• [27] At best, ground 2 could only have led to reductions in the adjudication decisions in the amounts mentioned in Annexure A to my judgment. Those amounts were de minimis in relation to two out of the three adjudication decisions. Accordingly, ground 2 was never a sound basis for obtaining declarations that the adjudication decisions were void. Again, that was for reasons other than those which the first respondent expressed in its offer.
• [28] As to ground 1, in its offer the first respondent wrongly asserted that any cursory review of the facts revealed the ground must fail. I disagree. Ground 1 was more arguable and although I found that it ultimately failed, my analysis of the reasons for that outcome were not anticipated by the argument expressed in the first respondent's offer. Indeed, some of the arguments which the first respondent put forward in justification of its offer reflected an approach to the construction of the underlying contracts contrary to that which I concluded was correct.

The clarity with which the terms of the offer were expressed

• [29] The offer was expressed in clear terms. However, as I have explained under the previous heading, the offer expressed reasons why it should be accepted which were inadequate.

Whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it

• [30] The offer expressly provided that, in the event it was not accepted or was allowed to lapse and the Court dismissed the application, the first respondent would rely on the offer in recovering costs on the indemnity basis from the date of the offer.

Conclusion on whether it was unreasonable not to accept the offer within time

(a) the lack of proper articulation in the offer of good reasons why the offer should be accepted; and

(b) the very short time within which the offer remained open, especially when, in context, the expiry of the offer was only a few days before the time when the first respondent was required to prepare a full outline of submissions;

and notwithstanding the clarity of the offer and the clear foreshadowing of an indemnity costs application, it was not unreasonable for the applicant not to accept the offer within time.

• [32] The first respondent has not persuaded me that the circumstances of the present case warrant a departure from the usual course.
• [33] Accordingly, the applicant must pay the first respondent's costs of and incidental to the application, to be assessed on the standard basis.

[1] Namely, an offer in accordance with the principles of Calderbank v Calderbank [1975] 3 All ER 333.

[3] See Hazeldene's Chicken Farm at [16], [18], [20].

[4] See Hazeldene's Chicken Farm at [20]; J & D Rigging at [5]; Hadgelias Holdings at [11] footnote 2 and the citation of Velvet Glove Holdings Pty Ltd v Mount Isa Mines Ltd [2011] QCA 312 at [105].

[5] See Hazeldene's Chicken Farm at [19]; J & D Rigging at [5].

[6] See Hazeldene's Chicken Farm at [19]-[20]; J & D Rigging at [5].

[7] See Hazeldene's Chicken Farm at [21]-[23]; J & D Rigging at [5].

[8] See Hazeldene's Chicken Farm at [21].

[9] See Hazeldene's Chicken Farm at [24].

[10] See Hazeldene's Chicken Farm at [25].

[11] See Hazeldene's Chicken Farm at [25]; J & D Rigging at [6]; Hadgelias Holdings at [11].