Costs in this Court: offers of compromise
13It may well be that, had the matter been remitted to the Tribunal, as the orders of this Court now require, a similar order might have been made in respect of the costs of the Tribunal. The matter having been remitted to the Tribunal, if the dispute is not settled it will be a matter for the Tribunal to determine the appropriate order for costs of the proceedings before it, including any further proceedings. That question is not before this Court. Relevantly for present purposes, the indemnity costs order made by the primary judge placed the builder in a strong bargaining position in an attempt to compromise the proceedings thereafter. As appears from the offers of compromise which followed the judgment of the primary judge, and are now in evidence before this Court, the costs incurred in the Tribunal alone exceeded the outcome of the substantive dispute.
14The total amount allegedly incurred in respect of the whole of the litigation to December 2009 was well in excess of $600,000 and thus many times the amount in dispute. The builder contended that the amount of the costs incurred demonstrated the importance for this Court to give proper encouragement to steps taken to resolve such disputes, by promoting the expectation that reasonable offers, if refused, may have costs consequences, although the Court may not have been in a position to resolve the dispute finally.
15An affidavit prepared by the solicitor for the builder exhibited a bundle of correspondence, including 14 letters to the solicitors for the owners sent between 10 September 2009 and 4 May 2011, and nine replies in the same period. The temporal context involved the making of orders by the primary judge, initially on 7 March 2008 (which appears to have been treated as a material date for the original notice of appeal); the final orders, made on 2 March 2009; the amended notice of appeal filed on 26 March 2009 and the hearing of the appeal on 17 May 2011. (The extended negotiations also suggested a reason for the unusual delay between the commencement of the appeal in this Court and the hearing of the appeal: an initial hearing date appears to have been fixed for April 2010.)
16The owners have taken no issue with the bundle of correspondence relied upon by the builder. It is appropriate, first, to have regard to the letter of 10 September 2009, setting out the first offer made by the builder following the final orders of the primary judge. That offer involved a payment by the builder to the owners of an amount of $72,000, in round figures, with each party to bear their or its own costs of the appeals before the primary judge and in this Court, but allowing for the costs orders in favour of the builder in respect of the Tribunal proceedings to remain in force.
17So far as the financial orders were concerned, the proposed settlement was probably a reasonable estimate of the outcome before Howie J, the amount of interest on the progress payment and the retention sum being an uncertain quantity. Because there was not then (and never was, relevantly for present purposes) any cross-appeal which would increase the amount payable to the owners, payment of this amount would have been a significant concession. It was, however, offset by the proposal that the builder not pay costs of the proceedings before the primary judge. According to a letter from the solicitors for the owners, dated 22 December 2009, the owners had incurred costs of approximately $110,000 in respect of the proceedings before the primary judge. They would no doubt have recovered a substantially smaller amount by way of party and party costs, although their expectation in that regard was not identified.
18The parties are now in the same position they were in before the Tribunal, except that the owners did not validly terminate the contract. Whether they repudiated the contract or not is a separate question to be determined by the Tribunal; nevertheless, it is difficult to conclude that they have any reasonable expectation of being better off as a result of a further hearing of the Tribunal. They did not assert they would be. Accordingly, the offer of a balance payable in favour of the owners in an amount of $72,000 appears likely to be in excess of any amount to be payable pursuant to final orders of the Tribunal.
19To the extent that the orders in respect of costs before the primary judge have been set aside, the offer of compromise has at least been achieved. So far as costs in this Court were concerned, the offer by the builder that each party should pay its own costs, has been bettered by success in this Court, giving the builder a prima facie entitlement to its costs in this Court, subject to the further consideration given to this issue below.
20The order as to the costs before the Tribunal has been set aside, as a consequence of the builder's success in this Court. Whether it will get an order in precisely the terms enunciated by the primary judge if the matter returns to the Tribunal, is uncertain, but no argument was put by the owners that there was not a reasonable expectation of paying costs on an indemnity basis from 17 December 2004. No submissions were made as to the principles likely to be applied by the Tribunal in determining the question of costs of proceedings before it, and nothing said by this Court should be seen as foreclosing the Tribunal's discretion to make an appropriate order. The current exercise is limited to making an assessment of the reasonableness of the offers of compromise, on the basis of the material before this Court and the submissions made to it.
21On 2 November 2009, the owners rejected the offer as not involving "a genuine compromise". No counter-offer was made. By letter dated 3 November 2009, the solicitors for the builder responded inviting a counter-offer and indicating a willingness to negotiate. The owners responded on 20 November seeking a "breakdown" of the estimate given by the builder of the costs of the Tribunal proceedings, which had been "in the order of $260,000.00".
22On 9 February 2010, a further offer was made by the builder (which is not relied upon for present purposes). That offer involved a change of heart in relation to the retention sum of $12,000, as a result of which the net amount payable in respect of the financial liability of the builder was $60,000, instead of $72,000. However, the builder offered to pay $20,000 in respect of the owners' costs before the primary judge and offered to accept $182,000 for its costs in the Tribunal. The result, it noted, would be a payment by the owners of $90,000. That offer was rejected on 2 March 2010.
23By letter dated 25 March 2010 the owners made a counter-offer which involved maintaining all the orders of the primary judge and setting off the orders against the builder for costs in the Supreme Court against the builder's entitlement to indemnity costs in the Tribunal. In addition, the builder was required to pay the owners the sum of $55,000. The appeal was to be dismissed with no order as to costs. On 31 March, the builder responded, rejecting the owners' offer and providing a further offer requiring a net payment to it of $80,000 plus the retention sum. That offer was rejected by letter dated 9 April 2010.
24Following the vacation of the hearing dates in April 2010, there was no further correspondence until 4 May 2011. The offer of 4 May 2011 by the builder increased the amount payable to the owners in respect of their judgment to $97,500. That figure was, the letter noted, the owners' own calculation of the value of their judgment as at 2 November 2009. (The effect of interest since that date was not explored.) Payment of the amount of damages ($85,000), excluding the release of the retention sum, was to be stayed pending agreement or assessment of the Tribunal costs, against which the payment was to be offset. The offer no longer sought agreement as to the amount of those costs. However, as the owners' own estimate of their costs of the Tribunal proceedings was in the order of $140,000 there can have been little doubt that a balance was payable to the builder. There was no response to that letter.
25The position of the parties as revealed by the correspondence is frankly puzzling. At no stage did the builder seek to suggest that there was not a significant balance due and payable by it to the owners on account of damages under the contract, after allowing for its entitlement to progress payment number 8 plus interest. Whether it will in fact be able to improve its position on remittal to the Tribunal is by no means clear: what is entirely clear is that the financial outcome of the proceedings will turn on the ultimately orders as to costs. No doubt a major achievement for the builder in this Court has been to set aside the costs orders made by the primary judge in respect of the proceedings before him. On the other hand, the risk to the builder was that, if the orders made by the primary judge were set aside, it would lose the immediate benefit of its indemnity costs order in respect of proceedings in the Tribunal. That has happened.
26On the other side, from March 2009 until May 2011, the owners made no attempt to challenge the indemnity costs order against them with respect to the Tribunal proceedings. Nor did they, in relation to the offers of compromise, take any realistic position in respect of their liability under that order. While they disputed the amount of the builder's claim of $260,000, they asserted that their clients had spent almost $140,000 in the Tribunal. On the basis that their clients had to bear those costs and, say, an equivalent payment to the builder, their clients faced a deficit which the judgment in their favour, together with the costs orders of the primary judge, would not erase. Their approach to the offers of compromise failed, at least in this respect, to acknowledge the best possible outcome for them in this Court.
27In passing, it may be doubted whether compromise will usually be achieved by lengthy argumentative correspondence between solicitors. That is not to say that the tone of the correspondence was in any sense inappropriate: it is merely that offers are likely to be made and accepted only when each party makes its own clear-headed assessment of its financial position, accepting the vicissitudes of litigation. If the owners made a rational assessment of their financial bottom line, it does not appear from the correspondence.