Stockland (Constructors) Pty Limited & Anor v Darryl I Coombs Pty Limited & Ors

ABB Engineering Construction Pty Ltd v Abigroup Contractors Pty Ltd [2003] NSWSC 867 Abigroup Contractors Pty Ltd v Peninsula Balmain Pty Ltd (No 2) [2001] NSWSC 1016 Aequitas Limited v Sparad No 100 Ltd (formerly Australian European Finance Corp Ltd) [2001] NSWSC 14 Australian Trade Commission v Disktravel [2000] FCA 62 Colgate-Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248 Cretazzo v Lombardi (1975) 13 SASR 4 Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 Donald Campbell & Co Ltd v Pollak [1927] AC 732 Doric Products Pty Ltd v Lockwood Security Products Pty Ltd [2002] FCA 282 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20 Foster v Farquhar [1893] 1 QB 564 Hughes v Western Australian Cricket Association Inc (1986) ATPR 40-748 CASES CITED : J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (No 2) (1993) 46 IR 301 Jeans v Bruce [2004] NSWSC 758 LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd (No.2) [2002] NSWSC 72 Madden as Official Liquidator of Aquanaut Constructions Pty Ltd (in liq), Re [2001] NSWSC 1051 NRMA Ltd v Morgan (No 3) [1999] NSWSC 768 Orion Pet Products Pty Ltd v Royal Society for the Prevention of Cruelty to Animals (Vic) Inc (No 2) [2002] FCA 967 Oshlack v Richmond River Council (1998) 193 CLR 72 Ritter v Godfrey [1920] 2 KB 47 Smith Re : Ex parte Rundle (No 2) (1991) 6 WAR 299 Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR (NSW) 371 Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 28 ALR 201; [1979] 42 FLR 213 Waters v PC Henderson (Australia) Pty Ltd (Kirby, Mahoney and Priestley JJA, NSWCA, 6 July 1994, unreported, BC9404952)

Stockland (Constructors) Pty Limited (ACN 002 421 098) (First Plaintiff/First Cross-Defendant) Stockland (Properties) Pty Limited (ACN 000 059 393) (Second Plaintiff)/Second Cross-Defendant) Darryl I Coombs Pty Limited (ACN 001 367 317) (First Defendant) PARTIES : Philip J Flook Pty Limited (ACN 004 412 504) (Second Defendant) Retail Design Group (International) Pty Limited (ACN 002 421 098) (Third Defendant/Cross- Claimant)

Mr PL Dodson (Plaintiffs/Cross-Defendants) COUNSEL : Mr Tan (First and Second Defendants) Mr RD Newell (Third Defendant/Cross-Claimant)

Cohen & Krass (Plaintiffs/Cross-Defendants) Minter Ellison (First and Second Defendants) Edlegal Consulting (Third Defendant/Cross-Claimant) SOLICITORS :

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

55046/99 Stockland (Constructors) Pty Limited & Anor v Darryl I Coombs Pty Ltd & Ors JUDGMENT Costs judgment Position of first and second defendants 1 These proceedings are presently before the Court for the purpose of making of final orders including orders as to costs. 2 The plaintiffs have agreed with the first and second defendants as to the appropriate consensual orders to be made as to the costs of the first and second defendants. 3 The parties to the second cross claim, that is the first and second defendants of the one part and the third defendant of the other part have also agreed as to the manner in which the second cross claim is to be disposed of. 4 The parties are also agreed that there should be judgment for the defendant on the plaintiff's claim in the proceedings. 5 The only issue which remains live concerns what costs or indemnity cost orders should be made between the plaintiff and the third defendant in respect of which there will be a contest. Because Mr Tan, solicitor, here represents the first and second defendants, the convenient course is to commence by making the consensual orders concerning his clients and to then excuse Mr Tan and to proceed to the contested costs issues which separate the plaintiff and the third defendant. The orders with respect to those matters will then be dealt with. Orders

1. Order that there be judgment for the defendant on the plaintiff's claim.

2. Order that the plaintiff pay the 1st and 2nd defendants' costs of the plaintiff's claim on a party party basis.

3. As to order 2, note the agreement of the plaintiff and the 1st and 2nd defendants:

(a) that the 1st and 2nd defendants' costs on the claim are agreed to be $230,000. (b) that subject to paragraph (c) it is agreed that the costs in that sum will be paid within 14 days of the judgment. (c) that should the cross claimant to the 1st cross claim lodge an appeal against any part of the judgment, the payment of costs will not be taken to constitute an admission by the plaintiffs or operate in bar of any right of appeal which the plaintiffs may elect to institute against any part of the judgment. 4. The court by consent grants leave to the 2nd cross claimant to discontinue the 2nd cross claim, noting that each party to the 2nd cross claim has agreed to bear its own costs. Plaintiffs versus third defendant 6 What remains involves the dispute between the plaintiff and the third defendant as to the appropriate orders to be made. 7 The proceedings have had a lengthy history and have been strenuously litigated. It is inappropriate to repeat the record. Some background of a general nature was given in an interlocutory judgment [2004] NSWSC 333. More particularly the details of the issues litigated and the Court's decisions at various levels may be found: · in the sundry interlocutory judgments delivered prior to the first report · in the first report of the referee of 29 June 2004 · in the judgment of the Court [2004] NSWSC 894 · in the second report of the referee of 29 Nov 2004 · in the judgment of the Court [2005] NSWSC 157 8 The central structure is as follows: · the plaintiffs claimed $820,125 and interest and costs; · the claim by the cross claimant/third defendant, identified in the first report, was to $381,550 plus delay costs and expenses, and alternatively, to a quantum merit [in the fullness of time at their zenith the claims pursued on the cross claim, were to $2,988,878, one part of which claim was a claim for a percentage of the increased construction costs of the project. The cross claimant abandoned claims between 24 September 2004 and 15 October 2004 for $312,683. In short the cross claim in terms of the entirety of the ambit claim reduced to $2,445,199; · the plaintiffs were unsuccessful on their claims; · the cross claimant succeeded in obtaining an award of $230, 996. 9 The cross claimant succeeded in its contention [dealt with in the 28 September 2004 judgment] that the proceedings were appropriate to be remitted to the referee for clarification/reconsideration of the ambit of fees properly allowable to the joint venture in light of the referee's findings or varied findings following the remitter. The subsequent report was adopted. 10 The plethora of issues litigated at various stages is apparent from the referee's reports and to an extent further dealt with in the judgments delivered on the applications to adopt initially the first report and thereafter the second report. The principles which underpin the exercise of the proper discretion as to costs. 11 In Oshlack v Richmond River Council (1998) 193 CLR 72 at 96, McHugh J [with whose reasons for judgment Brennan CJ was in general agreement] after dealing with the statutory jurisdiction conferring on the Court a broad discretion to award costs said:

Although the statutory discretion is broadly stated, it is not unqualified. It clearly cannot be exercised capriciously. Importantly the discretion must be exercised judicially in accordance with established principle and factors directly connected with the litigation. In this manner, the law has gradually developed principles to guide the proper exercise of the discretion and, in some cases, to highlight extraneous consideration which if taken into account, will cause the exercise of the discretion to miscarry. Consistent with the aim of justice the law could not have developed otherwise...by far the most important factor which Courts has viewed as guiding the exercise of the costs discretion is the result of the litigation. A successful litigant is generally entitled to an award of costs…

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.

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 inevitable lead to an increase in litigation with an increased and often necessary, burden on the scarce resources of the publicly funded system of justice." 12 A convenient further summary of the principled approach to exercise of the discretion as to costs, particularly in terms of the power of the court to deprive a successful party of all or some of its costs, is to be found in ABB Engineering Construction Pty Ltd v Abigroup Contractors Pty Ltd [2003] NSWSC 867: · "Thus, the starting point is that plaintiff, having been successful, is entitled to its costs. It is for the defendants to establish a basis for departing from that rule. · It is certainly the case that a successful party who has failed on certain issues may not only be deprived of their costs on those issues but may be ordered as well to pay the other party's costs of them Hughes v Western Australian Cricket Association Inc (1986) ATPR 40-748 at 48,136. · Notwithstanding that the Court has power to deprive a successful party of costs, or even order a successful party to pay costs, that is a course to be taken in unusual cases and with a degree of hesitancy. For example: (a) Cretazzo v Lombardi (1975) 13 SASR 4 at 16 (Jacobs J): "But trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. ... I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues."

(b) Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 (Gummow, French and Hill JJ): "The propositions enunciated in [ Hughes ] are subject to the further consideration that justice may not be served if parties are dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case: Cretazzo ... at 12. In Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 28 ALR 201, Fisher J regarded the discretion to apportion costs as one to be exercised only in the most exceptional circumstances. Nevertheless he accepted that where a considerable part of the trial is taken up in determining issues upon which a party fails, it is a proper exercise of the discretion to reduce the costs allowed to that party."

(c) Waters v PC Henderson (Aust) Pty Ltd (unreported, CA (NSW), Kirby, Mahoney and Priestley JJA, 40678/91, 6 July 1994) (per Mahoney JA): "Where the proceedings involve multiple issues the application of the rule that costs follow the event may involve hardship where a party succeeds on some issues and yet fails on others. Particularly is this so where, for example, a defendant succeeds on issues that occupied the bulk of the time taken by the proceedings. Nevertheless unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those in which it failed." (d) NRMA Ltd v Morgan (No 3) [1999] NSWSC 768 (Giles J): "Principles according to which some other order may be made are fairly well established. If a party fails on some issues, the circumstances may make it reasonable that he be deprived of the costs of those issues, or even be ordered to pay the other party's costs of those issues. For this purpose, issues may be issues in a pleading sense of bases of claim, or may be disputed questions of fact or law. But it must be remembered that parties should not be dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case, and unless a particular issue or group of issues is clearly dominant or separable from the balance of the proceedings it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between the issues on which he was successful and those on which he failed. It is sufficient to refer to Cretazzo v Lombardi (1975) 13 SASR 4 at 12; Hughes v Western Australian Cricket Association (1986) ATPR 40-748 at 48,136; Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 271-2; and Waters v P C Henderson (Australia) Pty Ltd (NSWCA, 6 July 1994, unreported). (e) Doric Products Pty Ltd v Lockwood Security Products Pty Ltd [2002] FCA 282 (Hely J): "The courts have cautioned against too ready a resort to apportionment according to issue based outcomes. See, eg, Australian Trade Commission v Disktravel [2000] FCA 62. Justice may not be served if the parties are dissuaded by the risks of costs from canvassing all issues which might be material to the decision in the case: Cretazzo v Lombardi (1975) 13 SASR 4 at 16". · A recent application of the principle was by Barrett J in LMI v Baulderstone (No.2) [2002] NSWSC 72. In that case two plainly discrete claims were made by the plaintiff - a minor claim upon which the plaintiff was successful and the dominant claim upon which the defendant succeeded. His Honour considered the claims "were so separate and disassociated (although involving common witnesses) that I think they should be treated, for costs purposes, as if they had been the subject of separate trials". · Where the principle is applied it is generally not appropriate to order that costs be paid in respect of particular issues because "that would create a degree of artificiality, and would impose an extraordinarily difficult task upon any registrar faced with the need to tax costs, in default of agreement": Orion Pet Products Pty Ltd v Royal Society for the Prevention of Cruelty to Animals (Vic) Inc (No 2) [2002] FCA 967 (Weinberg J). · Rather it is generally appropriate simply to apportion costs [SCR 52A rule 6(2)(a)] on the basis of "impression and evaluation: Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272; LMI at paragraph 36. Mathematical precision is not required and the court will not attempt to be too technical or exacting in seeking to allocate costs: Dodds Family Investments at 272; NRMA Ltd v Morgan (No 3) [1999] NSWSC 768 (Giles J) at paragraph 25; Madden as Official Liquidator of Aquanaut Constructions Pty Ltd (in liq) [2001] NSWSC 1051 (Hamilton J) at paragraph 3; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20 at 22. Relevant factors include the relative time devoted to evidence and submissions on the competing issues: Hughes at 48-136; Waters at 5; Fexuto at 22-25; NRMA at paragraphs 31-47 and the relative success of the party in terms of its original claim: Abigroup Pty Ltd v Peninsula Balmain Pty Ltd (No 2) [2001] NSWSC 1016 (13 November 2001) at paragraphs 36-40; LMI at paragraphs 41-47." The bribery allegations. 13 Submissions have been addressed to a grave allegation made by the third defendant, namely that a Stockland employee had received an $18,000 bribe from the steel-sub-contractor in exchange for information about the acceptable tender range for the sub-contract. That matter was referred to in the judgment delivered by Master Macready on 29 August 2003 [cf paragraphs 48, 49, 51, 52, 54, 55, 56, 57, 58, and 59]. 14 Notwithstanding the stay order, the allegation continued to be pressed [cf the affidavits of Mr Reilly of RDG of November 2003 and April 2004]. 15 Ms Olssen SC for RDG, properly declined to press the matter several days into the hearing before the referee and the point was effectively abandoned by RDG. 16 Accordingly no finding was made by the referee to vindicate the persons whose integrity was attacked. 17 In terms of principle, it is clear that where a successful party has misconducted itself in litigation by raising grave but groundless allegations it may suffer various costs sanctions, including orders for indemnity costs in relation to the litigation of such issues: · allegations which are "grave" and "serious" yet "fanciful" or "far fetched" involving a "conspiracy theory" and which are "unsubstantiated by reliable evidence" enliven the discretion to award indemnity costs (Jeans v Bruce [2004] NSWSC 758 at paragraphs [38] - [41]; · such conduct is "conduct of a party … in connection with the litigation … [which is] … deserving of criticism" (Re Smith: Ex parte Rundle (No 2) (1991) 6 WAR 299 at 301; · in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248 Sheppard J listed a number of factors justifying an award of indemnity costs as including: - the making of irrelevant allegations of fraud; - the making of allegations which should never have been made or the undue prolongation of a case by groundless contentions. · if indemnity costs may be ordered then, a fortiori, an order depriving a successful party of part of its costs, or requiring that party to pay the opponents' costs of the relevant issue, is justified where a serious but groundless allegation has been made by the otherwise successful party. (See eg Donald Campbell & Co Ltd v Pollak [1927] AC 732 at 812 per Viscount Cave LC; Foster v Farquhar [1893] 1 QB 564 at 570 per Bowen LJ (a case in which a successful plaintiff was deprived of his costs and ordered to pay the defendant's costs on certain issues on which he failed); Ritter v Godfrey [1920] 2 KB 47 per Atkin LJ at 60; followed in NSW in Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR (NSW) 371 at 377; Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) [1979] 42 FLR 213 at 220 ff.) 18 The plaintiffs have submitted as follows: · that Mr Reilly of RDG stated on oath his belief in a conspiracy by the plaintiffs, their lawyers and accountants; · that the only conceivable evidentiary basis for the allegation was Mr Riley's assertion that he was told by Mr Phillip Moore that Mr Moore had overheard an admission that such a bribe was discussed but never paid; · that this view of the evidence was adopted by Master Macready in his judgment of September 2003. However, Mr Moore swore an affidavit and gave evidence for RDG at the final hearing yet never once during these proceedings deposed to overhearing any such admission; · that there was no other evidence to support the allegation. · that the allegation of a bribe was even less sustainable that it appeared when the matter was before Master Macready in August 2003. · that therefore, there was never any proper basis for an allegation of this criminal conduct in Mr Reilly's affidavits filed for the hearing. · that in view of the gravity of the allegation, the plaintiffs - as members of a publicly listed Trust Group - had to prepare a case in response to Mr Reilly's allegations in view of the risk that the rules of evidence might not apply to exclude Mr Reilly's hearsay assertions. · that the allegation was irrelevant to any issue before the Court and must therefore have been calculated to embarrass the plaintiffs. An employee who obtains a secret commission can be sued by his employer. No cause of action is conferred upon a third party in the position of RDG. No guilt attaches to the defrauded employer." 19 Mr Newell, of counsel, who appears for the third defendant had submitted that · "The case pressed by the third defendant was that there had been a secret commission arrangement between two persons known to each other according to which the tender price was arrived at. The fact of this arrangement was the reason that no contract was ever signed, there was considerable trouble with the Story Steel contract, and why Story Steel brought proceedings against Stockland Constructors and National Australia Trustees Limited. · The evidence was as follows: a. A record of interview of Phil Moore Stocklands contracts manager, was discovered by the plaintiffs, after orders by the court. that recorded a statement by Phil Moore to the effect that F Doug Thistle had told him in plain terms that he had made an arrangement for a secret commission and that the Story Steel sub-contract had been let on the basis of that arrangement. b. A file note from the previous day in which Stockland's solicitor indicates that he is to question Mr Moore about the "Thistle kickback" c. Mr Reilly's evidence about Mr Moore in which Mr Moore related the admissions by Mr Thistle. d. Bill Stewart of Story Steel refers in a letter dated 4 August 1995 to the fact that Mr Thistle destroyed a tape of a conversation about the negotiations for the contract because they were "incriminatory". Mr Thistle had had no hesitation in discussing the matter in question with Mr Stewart but clearly did not want the information to be known to third parties to the steel contract negotiations. e. Another file note in which Thistle says he destroyed the tape because it dealt with negotiations for the contract and he could not have that coming out. f. There was evidence of a side agreement between Thistle and Story which made specific arrangement for variations to be promptly paid to Story g. Mr Thistle then continued to help Story Steel put through variation claims; h. The fact that the tender price was substantially below the market; and this was under circumstances that Story Steel, unlike the other tenderers; i. The fact that the tender price was generated in 5 days which is an impossibly short time to calculate a tender price in these circumstances; j. That Story Steel began at an early stage to contrive less than coherent complaints to support claims for variations; k. The fact that story Steel did not return the priced bill of quantities for many months although a requirement that it be returned within 14 days was known; l. That Mr Farrant found the secret commission allegation sufficiently credible when, as he has give sworn evidence, he was informed of Thistle's direct admission by Phil Moore. m. Mr Farrant gave sworn evidence on 8 August 2003 that he "probably did" make a connection between the admission to Phil Moore by Doug Thistle (record of interview and independent conversation with Mr Farrant) (an assertion by one party to the arrangement) and the statement in the letter of 4 August 1994 by Mr Stewart (see (d) above)(the other party to the arrangement). · The clearest piece of express evidence is the record of interview from Stockland's solicitors of an interview with Mr Moore at the time of the Story Steel proceedings. The relevant section of the notes of the interview sets out the following evidence by Mr Moore: a. An arrangement existed between Mr Story and Mr Thistle for a secret commission; b. That the arrangement included the provision of information concerning the tender price; c. That the Story Steel contract was in fact let on that basis (meeting in office) and; d. That the significance of the secret commission arrangement for the project was that following the letting of the contract on the basis of the secret commission arrangement, Story Steel had Thistle "by the balls" (Moore's words) and he Thistle "lost control of the project." · Significantly the record of interview provides evidence of a direct admission by Mr Thistle, the party to the arrangement for the devolution of a secret commission in return for assistance in obtaining the contract, and in particular providing information concerning budget or tender price. The evidence is of a direct exchange between two persons well known to each other and who worked closely together. It is impossible to see how it was thought proper to represent that this was a matter of "overhearing" some mention of a secret commission. It is also significant that the circumstantial evidence, quite apart from the record of interview all but confirmed the inevitability of such an arrangement. · The submissions advanced by the plaintiffs pretend to an understanding of the Third defendant' allegations obviously alien to the purport of the Third defendant's case. The issue is not the receipt of monies to which a person is not entitled but the contamination of the tendering and contract process. The third defendant did not prove the actual payment of the $18,000 into a particular bank account - if that is what happened. This is because the arrangement, (which was clearly acted upon) had completed its work when it was acted upon so as render the contract not arm's length. The assertion, repeated on behalf of the plaintiffs ad nauseam, that the third defendant failed to make out "the allegation" because they did not show the movement of the money is specious. · The plaintiffs' submissions contend that the impropriety of "the allegation" is evident from a number of matters. The use of the words the allegation warrants scrutiny. Those are dealt with as follows:

a. A stay operated in relation to a claim for particular damage to Mr Reilly's business until such time as security for costs was given. It is impossible to see how this should preclude, or render improper, tendering evidence of a secret commission arrangement that was the real and effective cause of Story Steel claim. It is material that, consistently with what was contended by the third defendant, the learned referee in fact found that:

b. Miss Olsson did not decline to do anything. Miss Ollson pursued a cross-examination of Mr Farrant in which Mr Farrant confimed having been told of the admission by Mr Thistle and having taken the information to the directors of the company Mr Graf and Mr Daly. Mr Farrant's sworn evidence was that he was told by them to do nothing about it as it would in effect be counter-productive at that stage of the project. It is fair to say Mr Farrant was told to turn a blind eye so as not to rock the boat. It is most difficult to reconcile the polished hand-ringing in the plaintiffs' submissions about "grave allegations" with the attitude in fact evinced by the plaintiffs' management at material times. Miss Ollson made the submission that given the failure to investigate a credible secret commission allegation (which by implication was material to the legitimacy of the Story Steel claim) the settlement could not be said to be reasonable. c. Notwithstanding references to "the only conceivable evidence" the evidence was as set out above. The suggestion that the evidence contains a positive indication that the secret commission was discussed but never paid is blatantly false. When Mr Moore was subpoenaed to give evidence by the Third Defendant, Mr Moore wrote a letter to the Third defendant's solicitors asserting that he had cancer and would not be able to remember anything he had previously said. Again the reference to "overhearing" is seriously misleading. d. The plaintiffs claim to have prepared a case in response to "Mr Reilly's allegations." There is no evidence that the plaintiffs did anything in response to the allegations. Given Mr Farrant's sworn evidence that he had been told about the secret commission arrangement by Mr Moore, and had taken it to the directors, it is difficult to see what role is left for Mr Reilly's "hearsay assertions" if any there were. That is in any event an entirely false description of the gravamen of the evidence.

e. The allegation that an arrangement which contaminated the tender process, leads to a non-contractual position and litigation is not irrelevant. As the learned referee found, the Story Steel deal was with a "old mate" and the real and effective cause of the Story Steel claim was that " it needed to recoup its costs on an unprofitable contract; and the lack of a signed JCCD subcontract form created the possibility of a reasonable cost or quantum meruit claim ." The assertion that an employee who obtains a secret commission may be sued by his employer involves a deliberate misunderstanding of the claim contrived to justify a disingenuous casting of opprobrium on the third defendant. · The plaintiffs submit that Mr Reilly gave evidence that there was a conspiracy. This assertion certainly reflects the way that the plaintiffs have sought to portray Mr Reilly during the litigation in the hope of securing a prejudgment of the issues. It is not uncommon for parties in the plaintiffs'position to seek to shift attention from uncomfortable issues in this way. However it is grossly misleading. The exchange presumably referred to (on 8 August 2003) is as follows:

Q I suggest to you that you were so utterly convinced that there was no problem with the architectural drawings that you think that this whole claim against you is really a conspiracy isn't that true? A I believe that yes Q And you believe that a number of people are involved in this conspiracy including for example the late Ervin Graf order of Australia? A Well Mr Graf personally said to my face I've done nothing wrong and I want you to put this through your insurance. If that makes him a party to a conspiracy, yes, I would say that. Q And Mr Farrant is in on the conspiracy, isn't he in your view? A If Mr Farrant substantiates the statements that have been made in his statements. Well then, yes, I believe he's part of that as well. Q And Mr Krass and his firm are part of the conspiracy against you? A I believe that if those firms have written things that they know not to be true then I would believe that they are part of - call it a conspiracy. That's you terminology not mine.

· The plaintiffs' counsel sought to put such words in Mr Reilly's mouth presumably with a view to discrediting him in submissions such as those under consideration. Mr Reilly's position is simply that the joint venture was scape-goated because the trustee could not be told that Story Steel did not have a genuine claim but was able to pursue one because there was no contract in place, and because of where such as proposition would lead. This is the basis of the trade practices cross-claim prepared by senior counsel based on the evidence." 20 On the material presently before the Court it is both inappropriate as well as impossible for the Court to determine the issues concerning the suggested bribery allegation having been groundless. The simple fact is that the allegation, although made, was ultimately determined not to be pressed. The materials before the Court simply do not permit a finding:

(a) that the bribery allegation was well founded, or

(b) that the bribery allegation was groundless and that the above-described principles are therefore engaged. 21 However, the issue not being pursued, an allowance for that fact requires to be taken into account in diminution of the plaintiffs' liability to pay the defendants' costs to be dealt with below. The third defendant's claim 22 The third defendant has contended that the plaintiffs should be ordered to pay the costs of the claim against the third defendant upon the basis that the plaintiffs, properly advised, should have realised that they had no prospects of success but persisted in what on proper consideration can only be seen to have been a hopeless case: cf J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (No 2) (1993) 46 IR 301. 23 There is substance in the proposition put by the third Defendant that the plaintiffs were unsuccessful upon the several issues litigated even to the extent of failing to prove loss. The matter is fairly summarised by the third defendant as follows:

Stockland maintained that the defendants' contract was with Constructors because it was transparent that Properties had not suffered any loss and that, under circumstances that the contract was with Properties, Constructors as a builder was not owed any relevant duty. No cogent evidence was ever tendered as to this question.

The following submission was made on the adoption motion and is repeated: "Generally there is a lack of reality to Stockland's attempt to dismiss the indicia of agreement relied upon by the defendants. The plaintiffs contend that Mr Daly originally signed letters "Stockland Properties Pty Limited." Mr Daly is now unable to say why it was that that was done. Mr Forbes apparently took up the practice from Mr Daly again without being able to explain its purpose. Thereafter the practice was followed by Mr Myers and Mr Beer all of whom are unable to explain why it was happening. It appears tat the practice continued for many years and none of these men of commerce questioned it, or reviewed it, despite the obvious and important implications. Against the background of this evidence, the plaintiffs assert that Mr Reilly, a draftsman, must be taken to have immediately understood the practice as absurd or irrelevant, and that the letters in question ought to have been signed Stockland Constructors Pty Ltd. It is submitted that the assertion must be rejected."

Proceedings were taken to trial by the plaintiffs without them ever nominating a benchmark by which to judge the defendants' drawings. The lack of any realistic prospects of success of the plaintiffs' case was revealed by their own submission, made in the adoption motion, that a breach could be established by reference to the proposition that the drawings had to be coordinated at all times. As the Court found, this approach was entirely misguided because it is elementary that one set of drawings had to be created before any question of coordination with another set of drawings arises.

The learned referee found that there was no causal connection between the defendants' conduct (which was not characterised by a breach of duty) and the claim by Story Steel. The plaintiffs did not question this finding. Despite this finding in tact, and that the plaintiffs were not seeking to canvass the finding, the plaintiffs were required to incur substantial costs in dealing with other issues in the plaintiff's adoption motion heard in September 2004. The motion was identifiably futile because, even if all of the plaintiffs' contentions had been accepted, that fact could not possibly have made any difference to the outcome.

The plaintiffs maintained that they had suffered loss by reason of the Story Steel proceedings. In fact, it emerged that no such loss had been suffered as National Australia Trustees Ltd. It is clear from the letter dated 31 January 1997 (Annexure "BP3" - Affidavit of Bronwyn Judith Paddick sworn 22 March 2005), that the plaintiffs had known since no later than 18 February 1997 that they had suffered no loss (Annexure "BP3").

Despite the well understood fact that no loss had been suffered, the plaintiffs obtained counsel's advice (Mr Amarena), as to the reasonableness of the settlement with Story Steel with a view to pressing a claim against the defendants. In that advice (annexure "BP4") Mr Amarena profoundly deprecated the "putative" claim against the architects as "even more novel" than that by Story Steel. He pointed out: "It must be remembered that it was Querist who permitted Story to proceed without a signed contract let alone a standard form building contract being in place. This left the dor open for Story to ask for the reasonable price of numerous variations and additions."

Mr Amarena finished with this observation: "If notwithstanding the above Querist is contemplating an action against the architectural joint venturers, I strongly recommend it get a second opinion from solicitors and counsel other than myself."" 24 These submissions are of substance. Whilst it is necessary for the Court to be very careful indeed before attaching the label "hopeless" or "paper thin" for the reason that descriptions of this type in the majority of cases would carry quite significantly the benefit of hindsight, the present is one of those cases where that description is apt. 25 The proper order in the principled exercise of the Court's discretion is that the plaintiffs should pay 95 percent of the third defendant's costs of the plaintiff's claim on an indemnity basis. The 5 percent reduction is in recognition of the fact that the bribery allegation was not pressed at the end of the day. 26 As to the proper orders to be made with respect to the cross claim, the proper order in the principled exercise of the Court's discretion should be that the second cross-defendant to the first cross claim is to pay 70 percent of the first cross claimant's costs of the first cross claim. 27 Finally, in terms of the draft short minutes of order where there was no issue between the parties, the appropriate entry is of judgment:

(1) for the cross-claimant against the second cross claimant on the first cross claim in the sum of $230,996; and

(2) for the first cross claimant on the first cross claim. Interest 28 In Aequitas Limited v Sparad No 100 Ltd (formerly Australian European Finance Corp Ltd) [2001] NSWSC 14, Austin J had occasion to consider when interest on damages should be disallowed, either in whole or in part. In his Honour's view, if the successful party had delayed commencing proceedings in circumstances where it would have been reasonable for them to have commenced proceedings at an earlier date, interest should be disallowed for the period between the date when it was reasonable for them to have commenced and the date when proceedings were actually commenced: cf Aequitas at paragraphs 457-464.

29 I have considered the factors which influence the Court's discretion to allow interest where a delay in regard to the commencement of proceedings is alleged. In what follows, I adopt the approach taken by Austin J in Aequitas.

30 In the current case, the cross-claimant filed its cross-claim on 18 January 2002. The cause of action, on which the cross-claimant succeeded, arose on 1 September 1996. It is my view that it would have been reasonable for the cross-claimant to have commenced its case on a date far earlier than the 18 January 2002.

31 In my view it would have been reasonable for the cross-claimant to have commenced its proceedings by 1 September 1997, a date twelve months after its cause of action arose. For this reason, it is appropriate to disallow interest for the period between 1 September 1997 and 18 January 2002 and to allow interest for the remaining period.

32 I calculate the interest to be $92,430.04, being interest against the principal sum of $230,996 for the period 1 September 1996 to 1 September 1997 and the period 18 January 2002 to 23 March 2005. Interest that accrues from 24 March 2005 has not been included in my calculation, though it will form part of the final interest amount payable. The parties have leave to address if this calculation be incorrect and should bring in short minutes of order. The matter will be listed on 1 April 2005 at 2.00pm.

I certify that paragraphs 1 - 32 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 31 March 2005

          Susan Piggott
          Associate
  31 March 2005

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.