The offers of 1 December 2011
51For the reason noted at [10], it is necessary to consider only the Calderbank offers made on that date.
52So far as it is relevant, the terms of the 1 December 2011 Calderbank offers were as follows:
For the purpose of compromise of the proceedings the plaintiff suggests the proceedings be consolidated and the plaintiff is prepared to compromise its claim on the following basis:
1. By verdict and judgment for the plaintiff against Lipman and Big Corp jointly and severally in the sum of $1,000,000.
2. Lipman and BigCorp is to pay the plaintiff's costs of each of the respective proceedings against them separately as agreed or assessed.
The plaintiff's suggestion as to consolidation of the proceedings is for the purposes of compromise only and the plaintiff does not seek to consolidated the proceedings if this offer is not accepted.
In order to be entirely clear the plaintiff is offering to compromise its claim against Lipman and BigCorp by accepting a total payment of $1,000,000 plus costs to be assessed or agreed. This offer is open to be accepted by Lipman or BigCorp jointly or severally.
The plaintiff's offer will remain open for 28 days from the date of this letter. This offer is made in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333 and the plaintiff intends to rely on this letter in relation to costs of the proceedings.
The parties' submissions
53I shall set out in some detail the submissions that were put. Many of those submissions were common, or relevant, to each of the subsequent offers. I do not propose to recount those submissions when dealing with the subsequent offers.
54Mr Young submitted that it was relevantly unreasonable for the defendants to refuse to compromise on the offered terms, because by then:
(1) there had been the drawn-out mediation process to which I have referred;
(2) experts had been retained jointly and had reported, both as to the existence of certain classes of defects and as to the cost of rectification;
(3) shortly before the offers were made (and indeed before the formal "mediation" referred to at [29] above), the Owners Corporation had particularised its damages claim in an amount exceeding $2.45 million; and
(4) the Owners Corporation had indicated that its costs were a little under $700,000.00 (of which a little under half was referable to the CTTT proceedings against BIGCORP only), and its disbursements to expert witnesses were about $214,000.00 (of which a little more than half was referable to the CTTT proceedings).
55Mr Ashhurst submitted that it was not unreasonable for Lipman to refuse the offer. He pointed to the fact that it proposed consolidation of the two proceedings, and an order that his client and BIGCORP should be jointly and severally liable for, among other things, the costs of the consolidated proceedings. That meant, Mr Ashhurst submitted, that Lipman would be jointly and severally liable for costs incurred in the CTTT (where his client was not a party) and, in this court, referable only to the dispute with BIGCORP.
56Mr Ashhurst submitted that acceptance of the offer would mean that Lipman was liable for costs incurred in prosecuting the compromised claim against NBRS, and what was effectively the abandoned claim against Avri (that claim having been abandoned when Avri went into liquidation).
57Next, Mr Ashhurst submitted, there were very significant issues which the Owners Corporation either abandoned wholly (including a significant one, relating to alleged defects in the external brickwork, where the amount claimed was approximately $400,000.00), and that it had failed if not entirely than substantially on other significant elements of its claim (for example, relating to alleged waterproofing defects in the windows, where the amount claimed exceeded $1.3 million and the amount awarded, with builder's margin, was $146,000.00). In those circumstances, Mr Ashhurst submitted, acceptance of the offer would mean that Lipman was required to pay the costs of those abandoned or substantially unsuccessful claims.
58Mr Ashhurst noted that, at the time this offer was made, the only evidence that the Owners Corporation had served was the report of Mr Rabone referred to at [33] above. Mr Ashhurst submitted, in substance, that it was not open to Lipman to make any real assessment of the strength of the Owners Corporation's case, and thus of the merits of accepting any offer of compromise or Calderbank offer, until the Owners Corporation had served all its evidence in chief. That process was not completed until late 2012: almost two years after this offer was made.
59Further, and as I have indicated, Mr Ashhurst submitted that acceptance of the offer might have required Lipman to pay the Owners Corporation's costs of the mediation. Thus, he submitted, it could not have been unreasonable for Lipman not to accept the offer. There appeared to be two separate aspects to this submission:
(1) as a matter of principle, an order for payment of costs of a proceeding (or in this case, the proceedings) would not extend to the costs of a mediation; and
(2) in any event, having regard to the leisurely way in which the mediation had been conducted, an order that Lipman pay the whole (or one half) of the Owners Corporation's costs of that process would not be reasonable.
60Mr Bambagiotti adopted Mr Ashhurst's submissions, to the extent that they covered matters common to both defendants. In substance, this meant that Mr Bambagiotti adopted all but the specific submission summarised at [55] above.
61In addition, Mr Bambagiotti submitted, there were two discrete claims brought by the Owners Corporation against BIGCORP which had failed entirely. One of those claims was brought against it in its capacity as successor to the obligations of FAI under a policy of insurance issued by it in favour of St Hilliers. That claim ultimately went nowhere, because the referee concluded (and I do not think it is now contentious) that none of the relevant defective work had been done by St Hilliers.
62The second discrete claim to which Mr Bambagiotti referred was one brought by the Owners Corporation against BIGCORP asserting breach of the statutory obligation to indemnify under s 103I of the Home Building Act 1989 (NSW). That claim did not succeed. Mr Bambagiotti submitted that although this claim might not have added much to the duration of the reference (and in essence, the referee so concluded, at R1232), it had been a matter of very great concern to BIGCORP, and one in respect of which BIGCORP had expended considerable resources.
63Mr Bambagiotti referred also (as did the referee also at R1232) to a claim asserting, against BIGCORP, breach of an alleged common law duty of care. With the greatest of respect to both Mr Bambagiotti and the referee, I have some difficulty in seeing how such a claim is articulated in the relevant version of the list statement. Nonetheless, since everyone seemed to accept that it was there, I proceed on the basis that the claim was understood to have been made, that it failed, and that (as the referee concluded at R1232), it did not add anything of significance to the duration of the reference.
64It is however necessary to note, as Mr Bambagiotti submitted, that the referee's detailed memoranda of fees show that he had expended more than four days in time writing the relevant sections of his report. Mr Bambagiotti submitted that, on any view, it would be unreasonable to require BIGCORP to indemnify the Owners Corporation for the relevant fees (in excess of $36,000.00).
65Mr Young submitted, in reply, that it was not relevant to look at success and failure on individual issues, nor, for that matter, at issues that had been abandoned. That was so, he submitted, because the essence of the process of compromise is that the sum offered would encompass all aspects of the offeror's claim, including both those on which it succeeded either wholly or substantially and those on which it failed either wholly or substantially. Thus, Mr Young submitted, it was not appropriate, in the context of assessing the response to a Calderbank offer of settlement, to descend to the detail of success or failure on ultimate issues.
66Further, Mr Young submitted that to the extent that costs had not been reasonably incurred, it would be open to the defendants to object to their being allowed on assessment. Thus, Mr Young submitted, if (contrary to his principal position) it were correct to say that one should look at success or failure on individual issues, that could be accommodated within the process of assessment. This submission picked up and developed a theme emphasised in correspondence emanating from the Owners Corporation's solicitors in relation to later offers.
67With reference to the submissions as to costs incurred in prosecuting claims against NBRS and Avri, Mr Young submitted that acceptance of the offer would not expose the defendants to liability for those costs. He submitted, alternatively, that it would be a matter for an assessor, if the parties could not agree, to decide the extent to which any such costs should be allowed against Lipman or BIGCORP. That principle applied also, Mr Young submitted, to Lipman's submission that acceptance of the offer would result in its being ordered to pay costs referable only to the CTTT proceeding, or the claim against BIGCORP.
68As to the costs of mediation: Mr Young submitted that there was no reason in principle why costs incurred in respect of a mediation should not form part of the costs of a proceeding. He submitted that the authority on which Mr Ashhurst relied (the decision of Bergin J in Mead v Allianz Australia Insurance Ltd [2007] NSWSC 500) was not authority for the general proposition that Mr Ashhurst sought to extract from it.
69As to the proposition that the mediation had been unduly protracted and expensive, Mr Young submitted that this was a matter that could be dealt with by an assessor.
70As to the proposition that the defendants were not in a position to assess the offer because the Owners Corporation had not served its evidence in chief, Mr Young submitted that the whole extended process of mediation had been conducted in the way it was (including by the joint retainer of experts) to enable the parties generally to obtain an understanding of the Owners Corporation's case as to defects. In those circumstances, he submitted, it was not to the point that all evidence in chief had not been served at the time this offer was made.
71I should note that both Mr Young and Mr Ashhurst referred me to various authorities. In some cases, those authorities supported manifestly correct, and uncontested, propositions (for example, the matters set out at [40], [41] above). It does not seem to me to be necessary to refer to those authorities.
72In other cases, the submission entailed taking a statement made in a fact-dependent decision, clearly relevant only to the particular facts of that decision, and asserting that it embodied some principle of general application. To my mind, that is a misuse of authority. A decided case is at most an authority for the particular proposition that is enunciated in it. Of necessity, that proposition is responsive to the particular facts of the case. It may be accepted that, in decisions of intermediate and ultimate appellate courts, there will be statements of principle explaining the decision, and that those statements of principle should be accorded persuasive, if not definitive, weight (depending upon among other things the identity of the court and the proximity of the statement of principle to the essential point decided). But it does not follow that something said by a judge (or by a court) in a decided case on a particular question of fact can be translated directly to another case involving quite different facts. It is necessary to evaluate the extent to which the facts drove the particular outcome, and then to analyse the extent to which those decisive facts are comparable to (or distinguishable from) the facts of the case under consideration. I regret to say that, in some cases, the submissions of counsel failed to undertake that, as it seems to me elementary, exercise.
73Unfortunately, it will nonetheless be necessary to pay some attention to what seems to me to have been the misguided citation of, or reliance upon, statements in some of the cases, when dealing with the issues in respect of which those cases were cited.
Decision
74There are two principal issues that require consideration. One is whether, as a matter of principle, the costs of the proceedings should include the costs of the mediation. The second is the balance of the submissions dealing with the question of unreasonableness.
75At this stage, I flag that in relation to the formally valid offer of compromise (that made on 21 December 2012), there is a separate issue: namely, whether the process of offer of compromise is really applicable to building defects cases such as this. In essence, it emerged from Mr Ashhurst's submissions that the position for which Lipman contended (and which BIGCORP adopted) was that the offer of compromise mechanism was not really capable of successful application in such cases. I shall deal with that separate dispute when dealing with that offer of compromise.
Costs of mediation
76I start with the decision in Mead. In that case, Bergin J had fixed a matter for hearing, and at the same time made "consent orders referring [the] matter to mediation", with an order fixing a time by which the mediation should occur. The time was extended. There was a mediation. It was unsuccessful. Shortly after the mediation concluded, offers of compromise were exchanged. The defendant accepted the plaintiffs' offer of compromise. It included a term that "the defendant pay the plaintiff's costs... as agreed or assessed on a party/party basis" (the "Whitney" issue does not seem to have been considered).
77The plaintiffs claimed that the costs of the proceedings should include costs of the mediation. Bergin J did not accept that submission. Her Honour said at [12]:
... this is really an application for me to construe an agreement that was reached between the parties; that is, whether that in agreeing that "the defendant pay the plaintiffs' costs of the proceedings" the parties intended that such costs included the costs of the mediation.
78The starting point of her Honour's analysis was that the mediation agreement included an express provision that the parties would bear the mediator's fees equally but that "if the mediation is not successful, then the plaintiffs reserve their rights to make an application... that Allianz pay the plaintiffs' costs of the mediation".
79By contrast, in the present case the mediation agreement provides only that the parties are to be liable for payment of the mediator's fees in proportions which were intended to be, but which were not, set out. The result, presumably, is that the parties are jointly and severally liable for the mediator's fees, perhaps with a right of recoupment in the event that one of them pays more than its rateable share. That interesting issue need not be perused, because on any view of the present mediation agreement, it contained no reservation of right of the kind found in the agreement considered by Bergin J in Mead.
80Of that reservation of right, Bergin J said at [10] that when the parties agreed to settle their differences on the basis that the defendant pay the plaintiffs' costs of the proceedings, "any right that was reserved in the plaintiff [sic] to make an application for the costs of the mediation was subsumed into or waived by the agreement that was reached".
81Her Honour expanded on that construction at [13], observing that:
... the parties were before the mediator sharing his costs equally and, on one view of it, sharing the whole of the costs equally, but if the mediation was unsuccessful there was the residuum; that is, the plaintiffs' reservation of their rights to make an application for a separate order that the defendant pay the costs of the mediation. It seems to me that such right was given up when the defendant agreed to the Offer of Compromise that made no mention of the costs of the mediation. It also seems to me that when the parties entered into the Mediation Agreement, they regarded the mediation as a separate aspect of their litigious process; that is, they saw it as necessary to make a separate application for costs of the mediation.
82Her Honour observed, further, at [14] that:
... in any event, as a matter of policy, it would not be appropriate to make [the orders sought by the plaintiffs] in circumstances where a consensual order for mediation was made; a Mediation Agreement was entered into; and a compromise was reached between the parties.
83It seems to me to be clear that her Honour did not lay down any general principle to the effect that an order for costs of proceedings could not or should not include the costs of a mediation undertaken, whether by consent or at the direction of the court, in the course of and with the aim of resolving the issues in those proceedings; nor did she intend to do so. On the contrary, her Honour found in the terms of the particular mediation agreement with which she was concerned an indication that the parties intended that the costs of the mediation should be treated separately from the costs of the proceeding. Having done so, her Honour gave effect to that intention in the costs order that she made.
84Her Honour's reference, at [14] to the "matter of policy" seems to me to reinforce this view. Her Honour said, as I read those observations, that where the parties had resolved their differences then, on the facts of that case, their agreement should be taken to have dealt with all the issues that the parties thought needed resolution, so that as a matter of policy the court should not seek to add to their bargain.
85The whole point of the decision in Mead is that the parties' mediation agreement, on its proper construction, recorded the intention and agreement of the parties that the costs of the mediation should be treated as separate from the costs of the proceedings. That is not this case.
86I do not regard the decision in Mead as authority for the proposition that Mr Ashhurst sought to extract from it, being that summarised at [59(1)] above.
87As I have noted, the mediation in Mead was the subject of a consent order. In this case, the mediation was likewise the subject of a consent order. On (I think) 30 June 2006, the court made the following orders:
By consent the Court directs:
(1) the proceedings be referred to Mr John Clarke QC as mediator.
(2) the parties arrange to for [sic] preliminary conference with Mr Clarke at the earliest possible time.
(3) the parties are to use their best endeavours to conclude the Mediation on or before 22 September 2006.
(4) proceedings re-listed for Directions on 29 September 2006.
88There was also a reservation of liberty to apply.
89Mr Ashhurst submitted that a "direction" was not an order. Thus, he submitted, this case was a fortiori to that considered by Bergin J in Mead.
90The submission that a command of the court, expressed in a document styled "short minutes of order" and setting out the "terms of orders", is not an order of the court because it is expressed in the language of direction rather than order is bold. It is also, in my view, both inconsistent with relevant provisions of the Civil Procedure Act and the UCPR, and wrong.
91In dealing with case management, s 58(1) of the Civil Procedure Act refers in para (a) to "any order or direction for the management of proceedings". Sections 61 to 63 of the Civil Procedure Act deal with the "powers of [the] court to give directions". Section 61 authorises directions as to practice and procedure generally. Section 62 authorises directions as to the conduct of a hearing. Section 63 authorises directions with respect of procedural irregularities.
92Part 4 of the Civil Procedure Act, comprising ss 25 to 34, deals with mediation of proceedings. Section 26(1) empowers the court, if it thinks it appropriate to do so, to order that any proceedings before it, or part, be referred for mediation. In the present case, it seems to me, the court was doing precisely that. The fact that the order was expressed in terms of a direction rather than an order does not detract from that position.
93In this case, the direction that was given (by consent) undoubtedly embodied the agreement of the parties. Thus, it may be accepted, the reference to mediation was consensual. However, the court did more than note the agreement of the parties to take the matter to mediation (and it is commonplace for the court to "note" agreements made by parties). It added to that agreement the force of the court's direction. The force of that direction is not lessened by the fact that it was one given by consent.
94Thus, as was the case in Mead (as Bergin J observed), the mediation is to be regarded as one ordered by consent of the parties to be undertaken. To put it another way, the parties, having agreed on the desirability of mediation, asked the court to give its imprimatur to that process, and the court did so by the order, or "direction", to which I have referred.
95Taking into account the provisions of the Civil Procedure Act to which I have referred (and acknowledging also that the subject of mediation is dealt with in the Rules, in Div 1 of Pt 20 of the UCPR), I conclude that the costs of a mediation undertaken at the order or direction of the court (whether or not made by consent) may fall to be considered as costs of the proceeding in which the mediation was so ordered or directed, unless the parties have agreed otherwise.
96It is not necessary to consider the situation of a mediation undertaken by consent and without the imprimatur of any court order.
97For present purposes, it is sufficient to say that I see no reason in principle why the costs of the mediation that the parties undertook, at the (consent) direction of the court, should not be treated as costs of the two proceedings. In this case, there being no indication that the parties intended otherwise, it seems to me that the proper inference to draw, from the fact that they asked the court to direct by consent that they mediate their disputes, is that they intended the mediation to be one undertaken within the scheme of Pt 4 of the Civil Procedure Act and Div 1 of Pt 20 of the UCPR. It follows, in my view, that in principle, and on the facts of this case, it is appropriate to treat the costs of the mediation as costs incurred in the two proceedings.
98Of course, if an order is made that one party should pay the other's costs of the mediation, it will be a matter for an assessor (if the parties cannot agree) to decide whether particular items of costs or disbursements should be allowed. I am dealing with the principle only, not with its precise application to particular costs claims.
Was it unreasonable for the defendants to refuse the offers?
99In my view, this question must be answered "no".
100It is necessary to pay attention to the terms of the offers (see at [52] above). They comprised the following elements:
(1) consolidation of the two proceedings;
(2) verdict and judgment for the Owners Corporation against Lipman and BIGCORP jointly and severally for $1 million; and
(3) Lipman and BIGCORP to pay the Owners Corporation's costs of the respective proceedings against them.
101The offers made it clear that the suggestion for consolidation was only for the purposes of the compromise, that the Owners Corporation sought only a total payment of $1 million plus costs, and that either or both of the defendants could accept it.
102This is not a case of separate offers, one as to the claim and one as to costs, each capable of acceptance and independently of the other.
103The clarification as to costs (namely, that each defendant should pay the costs of the particular proceeding against it) deals with one of Mr Ashhurst's points: namely, that the effect of consolidation would be to make Lipman liable for all costs, including those incurred in the separate proceeding against BIGCORP (which in turn would include costs incurred in the CTTT, before that proceeding was removed to this court).
104It may also deal with Mr Ashhurst's point that acceptance of the offer would require Lipman to pay costs, incurred in the proceeding against it, that were referable specifically to the claim against NBRS or Avri.
105However, at the time this offer was made, the only relevant evidence was:
(1) whatever might have been contained in the reports that had been jointly commissioned for the purposes of the mediation; and
(2) the evidence of Mr Rabone in the report that had been served late in 2011, shortly before the formal mediation.
106Those materials have not been put before the court on the application for costs. Accordingly, the court is in no position to say whether or not those materials would suggest, to an objective and reasonably informed reader, that the proposed settlement was reasonable.
107It is of course correct to say that the settlement sum offered was inclusive of interest, and made in respect of a claim that, on paper at least, exceeded substantially the settlement amount. But the plaintiff had not supplied any substantial evidentiary basis to justify its claims. And to the extent that it is relevant to take into account what happened, the following points can be made as to some of the ingredients of the particularised damages:
(1) the air-conditioning defects were particularised at $573,000.00. The referee allowed them in the sum of $271,000.00, including margin.
(2) The claim for waterproofing of windows was particularised at in excess of $1.3 million. The referee allowed it at $146,000.00, again including margin.
(3) There was a claim for repair of defects in the external brickworks particularised at up to $400,000.00. That claim was abandoned after the offers of 1 December 2011 were made.
(4) There were relatively minor claims relating to the swimming pool and roller shutter carpark which, including interest, totalled about $23,000.00. Those claims too were abandoned after the offers were made.
(5) There was a claim for rectification of acoustic defects particularised at $227,000.00 (later reduced to $193,000.00). The referee allowed it at $17,000.00, including margin.
108I accept that the question of reasonableness is not to be assessed with the aid of hindsight. Nonetheless, those matters have significance. They suggest that if the claim had been properly particularised and supported by expert evidence, and if the defendants had had the opportunity of considering it in detail, it would have been apparent that the claim was significantly overstated.
109It may be accepted, as Mr Young submitted, that one of the purposes of compromise is, as it were, to even out the strong points and weak points in a plaintiff's case, so as to enable an overall resolution to be achieved. But it does not follow from this that assessment of the merits of the proposed resolution is to be undertaken without a greater understanding than, in my view, the defendants had when this offer was made, of what those strengths and weaknesses are.
110As I have said, I conclude that, as the claim had been particularised, and taking into account the lack of evidentiary support to show why the compromise might be thought to be desirable, the Owners Corporation has not discharged the onus of showing that it was unreasonable for the defendants to reject this offer.
111On that basis, it is not necessary to consider whether to make the order sought would lead to injustice. If that issue did require consideration, I would in any event decline to make the orders sought essentially for reasons analogous to those at [189] to [198] below.