Smiths Specialised Building Services Pty Ltd v Brisull Industries Pty Ltd

Application for indemnity costs in their entirety

1. Smiths cites as one instance where an order for indemnity costs is raised, a delinquency in a party in bringing or defending a claim which it knows, or should have known, had no chance of success [2] .
2. Smiths argues that Brisull's circumstances fall into this category. Even if the evidence of its witness, Mr Britt, was accepted, it did not sustain the express term of the contract Brisull propounded. Even if the term existed, Brisull did not suffer loss. During the hearing, it was said that Brisull agitated claims for loss which it was not permitted to do. Smiths also says that Brisull's claim was contrived to avoid the debt.
3. Brisull argued that its cross-claim was not misconceived. It simply failed on the evidence ultimately accepted by the Court as being contrary to the facts asserted.
4. Smiths' application that Brisull pay the costs of successfully defending the latter's cross-claim in their entirety is ambitious. As to its point about the absence of evidence to sustain Brisull's propounded term of the contract, if Brisull's prospects in relation to the cross-claim were so poor, or manifestly untenable, it might have been expected that the cross-defendant would move for summary disposal of the claim; which it did not do. If it did not do so after service of the cross-claim, it was in a position to do so after Mr Britt's primary affidavit had been served (on 3 December 2020).
5. As to its point about Brisull's inability to prove that it suffered loss from the breach of the contentious term it propounded, it is plainly correct that this was the result determined by the Court. However, as the analysis at [105]-[114] of my reasons indicate, Brisull's argument was not doomed to fail. There were issues of mixed fact and law considered by the Court in reaching the conclusion that it did. Merely because a party in contested commercial litigation succeeds in a court accepting its contention does not mean that it was delinquent for the opposing party to raise a contrary contention.
6. As to its point about whether Brisull agitated heads of loss contrary to what it was allowed to do on the pleadings, from the beginning [3] to the end of the hearing, the parties were in dispute about what fell within the cross-claim. Ultimately, however, the Court determined that there was no material difference in the treatment of each suggested head; however nuanced the arguments were. In this way, the differences in the way that the arguments ran did not materially add to the costs of defending the cross-claim.
7. The application for indemnity costs in their entirety is refused.

Application based on refusal of a Calderbank letter

1. Smiths referred to the two basic considerations which courts take into account when considering whether an order for indemnity costs should be made on the basis of a refusal by the offeree to accept terms of settlement in a Calderbank offer: (a) whether there was a genuine offer of compromise; and (b) whether it was unreasonable for the offeree not to accept it [4] .
2. As to the former consideration, Smiths argues that the settlement terms offered in the Calderbank offer involved it foregoing 25% of its costs, then incurred, and also the costs which it would incur if the matter proceeded to a 3 day hearing.
3. As to the latter consideration, Smiths alludes to the offer being made approximately 3 weeks prior to the hearing; at which point the parties were positioned to properly assess their prospects (without undue disruption in preparing for the hearing itself) and was open for 2 weeks. It argues that the consequence of the offer not being accepted was Smiths incurring costs which were proportionately high, given the value of Smiths' debt claim. Further, the Calderbank offer anticipated findings that the Court ultimately made; there was no ambiguity in the terms; and Smiths had foreshadowed its intention to rely upon the offer on the question of costs if it defeated the cross-claim.
4. Brisull argues that the offer did not amount to a proper Calderbank letter. There was no genuine compromise in that nothing was, substantially, given away by Smiths: all that was being offered to Brisull was that which Smiths would achieve if it had capitulated on liability and the costs question fell to be determined by a costs assessor. It was therefore not unreasonable for Brisull to reject it.
5. In reply, Smiths argues that in an 'all or nothing' case, the only room for compromise may be in relation to costs. Further, even if an offer amounts to an invitation to capitulate, that may be legitimate, to enliven the court discretion to award costs, where a party's case lacks "a colour of substance" [5] .

Consideration

1. Smiths did not serve any offer of compromise under Court rules; such that it could rely upon what, in effect, was a presumptive entitlement to costs. Its submissions recognise that it must persuade the Court that Brisull's rejection of the Calderbank letter was "unreasonable" in all the circumstances of the case [6] . It is well-established that the discretion is unlikely to be enlivened where the point of the Calderbank letter is to trigger costs sanctions [7] .
2. In Leach v Nominal Defendant (No.2) [2014] NSWCA 391, McColl JA (Gleeson JA and Sackville AJA agreeing) observed (at [42]) that whether there was a real element of compromise is determined objectively according to the circumstances of the particular case at the time the offer was made, rather than with the benefit of hindsight.
3. There are circumstances where, for example, a walk-away offer is made at a reasonable time into a proceeding where, say, a defendant (or cross-defendant), having incurred substantial costs, offers to the plaintiff the result that each party bears their own costs and, in such way, has been shown to have foregone an amount that has substantial value. This was not however a 'walk away' offer. This offer required Brisull to pay a large proportion of Smiths' costs up to the date when the offer was made.
4. An offer to forego future costs could not, of itself, found a basis for a genuine offer of compromise. If it did, it would always generate an entitlement in a successful party who has served a Calderbank letter since the successful party would always argue that had the earlier offer been accepted, it would have spared the unsuccessful party of any liability to pay the successful party's future costs from the date of the offer.
5. I do not consider that what was being offered as at the date of the Calderbank letter represented, objectively, a genuine compromise; but rather represented a demand that Brisull capitulate. As at the date of the offer, what Smiths was offering to forego was 25% of its past costs incurred. No evidence was adduced from an independent costs consultant as to the likely recovery of costs on a contested assessment but in my own experience, it would be touch and go whether, had Brisull accepted the offer there and then, that Smiths would have been entitled to 75% of its costs. Further, the offer was calculated in a fashion which ascribed no value to Brisull's cross-claim which, if it had succeeded on the main claim (the express term proposed by Brisull, as distinct from the claim for defective works) would likely have exceeded Smiths' debt claim and, by operation of set-off, effectively extinguished it.
6. As to its point that this was an 'all or nothing case' on liability, contrary to Smiths' contention, that is a factor which points against the imposition of a costs order on an indemnity basis, rather than pointing towards it.
7. As to its point that Smiths claim lacked "colour of substance", as I indicated earlier, at no stage did Smiths apply for the summary disposal of the cross-claim. That omission can be taken to reflect recognition, on Smiths' part, that Brisull's cross-claim was at least arguable and thus had some prospects of success. In short, that it had some value.
8. As indicated, to the extent that the offer indicated that Brisull would not be liable for Smiths' costs in defending the cross-claim from the date of the offer, this is not sufficient to amount to a genuine compromise.
9. This being so, the Court is not inclined to exercise its discretion to make a special costs order.
10. Brisull should pay Smiths' costs of the cross-claim on the ordinary basis.

Orders

1. The Court orders: 1. Judgment for the plaintiff in the amount of $42,450.72. 2. The defendant pay the plaintiff's costs of the plaintiff's claim as agreed or assessed. 3. The cross-claimant pay the cross-defendant's costs of the cross-claim on the ordinary basis as agreed or assessed. 4. The orders in (2) and (3) are subject to the plaintiff/cross-defendant not being entitled to its costs of its application for indemnity costs and the plaintiff is to pay the defendant/cross-claimant's costs of that application.

Endnotes

1. Smiths Specialised Building Services Pty Ltd v Brisull Industries Pty Ltd [2021] NSWDC 331
2. Seller v Jones [2014] NSWCA 19 at [58]
3. 13 July 2021, T 4-11
4. Miwa Pty Ltd v Siantan Properties Pte Ltd (No.2) [2011] NSWCA 344 at [8].
5. NRMA Insurance for Nominal Defendant v Al-Bayati (No 2) [2019] NSWCA 14 at [5]
6. Leichhardt Municipal Council v Green [2004] NSWCA 341 ('Leichhardt MC') at [19]
7. Leichhardt MC at [39]

Amendments 03 August 2021 - Typographical error 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. Decision last updated: 03 August 2021