Tsu v Nemeth & Anor

Judgment 1BEAZLEY JA : I agree with Handley AJA. 2WHEALY JA : I agree with Handley AJA. 3HANDLEY AJA : General This appeal, cross appeal, and cross appeal by leave comprise the latest round in a saga of litigation generated by damage to a three-storey residential building then owned by Mr Ferdinand Nemeth at 46 Mona Rd Darling Point in July and August 2001. The damage was caused by the excavation of sand during building construction at 44 Mona Rd. This commenced on 1 July that year, with the proprietors Prynew Pty Ltd and Mr Tsu; and Piling Contractors (Qld) Pty Ltd the piling subcontractor. 4Mr Nemeth commenced an action for damages against the owners and subcontractor on 28 June 2002 claiming the cost of repairs. On 29 July that year Mrs Nemeth became registered as proprietor of a half share in the property and on 20 December 2002 she was added as a plaintiff. Since the damage occurred, the repair work commenced, and the action was started while Mr Nemeth was sole proprietor, it is not clear that Mrs Nemeth was a necessary or proper plaintiff. 5On 29 July 2005 the action and the cross claims were referred to Janet Gray, pursuant to SCR Pt 72 r 2(1), for enquiry and report. 6The referee submitted her 330 page report on 1 February 2007. Motions for its adoption or otherwise were heard by Macready AsJ and were the subject of judgments dated 26 February 2008 [2008] NSW SC 118, 14 April 2008 [2008] NSW SC 327, 23 June 2008, 23 February 2009 and 10 June 2009 [2009] NSW SC 511. 7On 30 July 2008 after Mrs Nemeth had commenced proceedings in the Family Court against her husband she ceased to be a plaintiff and was made a defendant. On 21 July 2009 Prynew and Mr Tsu appealed from the judgments and orders against them. On 4 September 2009 Piling filed its cross summons for leave to cross appeal from the orders for costs. On 16 November 2010 Mr Ferdinand Nemeth died, and on 26 November the Allsop P appointed Mr Anthony Nemeth to represent his father's estate in the proceedings in this Court. On 7 April 2011 Prynew was wound up by order of the Supreme Court, and on 17 August its liquidator discontinued leaving Mr Tsu as sole appellant. Prynew should be joined as a submitting respondent. 8The appeal, originally on many grounds, was limited by the third further amended notice of appeal (Orange 83). This only challenged the decision of 23 February 2009 (Red 1/194) in which the Judge refused to remit parts of the Referee's report and some of the orders for costs made on 10 June 2009 (red 1/212). The former was interlocutory, but being made before the final orders of 20 July 2009 (red 1/239), it can be challenged in an appeal from those orders: Gerlach v Clifton Bricks Pty Ltd [2002] HCA 22, 209 CLR 478. At the end of the hearing in this Court on 7 November 2011 Piling was granted leave to cross appeal. 9The Judge, as required by s 109Z of the Environmental Planning and Assessment Act (EPA Act), (now s 35 of the Civil Liability Act ), apportioned the plaintiff's damages of $263,642.37 including GST among the defendants. He gave judgments against Prynew (the first defendant) for $148,298.83 plus interest, against Mr Tsu (the second defendant) for $49,432.95 plus interest, and against Piling (the third defendant) for $65,910.60 plus interest. 10The Judge ordered ([2009] NSWSC 511) the three defendants jointly and severally to pay the plaintiff's costs of the reference and the proceedings generally (red 1/241, Order 7). The first and second defendants were jointly and severally ordered to pay the plaintiff's costs of the proceedings for the adoption of the report (ibid Order 5). 11The Judge declined to apportion those costs or to make special orders based on Calderbank offers by the first and second defendants. Those orders were challenged in the appeal and were the subject of the cross appeal by the third defendant. 12In his judgments of 26 February and 14 April 2008 the Judge decided the substantive questions between the parties, substantially in favour of the plaintiffs. 13On 12 March 2008 the first and second defendants filed a notice of motion (blue 69) seeking orders re-opening paras 435-487 of the Report and their remission to the Referee for further consideration. Those paragraphs dealt with the measure of damages and concluded that the plaintiffs could recover the cost of repairing the house because this was a reasonable course for them to adopt. The Referee found that the property was worth approximately $5.5 million as a development site, and only $4 million with the existing residence. The plaintiffs would fail if diminution in value was the appropriate measure of damages. 14The notice of motion was based on evidence recently discovered by Mr Tsu that in late 2004 Mr and Mrs Nemeth had arranged for building work to be carried out pursuant to a development consent of January 2000 to keep that consent alive. The Referee accepted Mr Nemeth's evidence that although he had intended to redevelop the site he changed his mind in 2002 and decided to retain the existing building and repair the damage caused by the defendants' excavation. He said he did this to please his wife and because of his poor health (the relevant evidence by Mr Nemeth). 15The Judge declined to reopen despite the importance of the question (see judgment 23 June 2008 at [3], [4]) and dismissed the motion with costs (blue 54). This decision has not been challenged. The second motion to re-open 16On 30 July 2008 the first and second defendants filed a second notice of motion (blue 107) seeking an order remitting paras 436-459, 461-476, and 478-487 of the Report to the Referee for reconsideration and further report. These paragraphs were substantially the same as those which were the subject of the earlier notice of motion. In substance those defendants sought a new hearing before the Referee on limited issues. 17The second motion was based on evidence lately discovered by the first and second defendants in the form of an affidavit filed by Mrs Nemeth in the Family Court on 12 June 2008. This contradicted the relevant evidence by Mr Nemeth. 18The Judge dismissed the second motion on 23 February 2009 (red 1/194). Unsurprisingly he found [14]-[15] that Mrs Nemeth's affidavit presented "quite a different picture" to that painted by the relevant evidence of Mr Nemeth. The latter had been critical to the Referee's conclusion that the cost of repair, and not the diminution in value, was the appropriate measure of the plaintiffs' loss. 19The Judge acted on the familiar passage from the reasons of the plurality in Smith v NSW Bar Association [1992] HCA 36, 176 CLR 256, 266-7: "If an application is made to re-open on the basis that new or additional evidence is available, it will be relevant ... to enquire why the evidence was not called at the hearing ... [D]ifferent considerations may apply depending on whether the case is ... one in which reasons for judgment had been delivered ... In the latter situation the appeal rules relating to fresh evidence may provide a useful guide as to the manner in which the discretion to re-open should be exercised." 20The Judge [21] distinguished RTA v Comerford [2001] NSWSC 293 where the application to reopen was made before the report had been adopted. Hunter J. said [23]: "At this point there are no findings binding upon the parties in the form of the second report and there is no judgment of the Court disposing of the proceedings." 21Comerford was correctly distinguished. In this case the Judge had adopted the bulk of the report supplemented with some findings of his own but final orders had not been made. This situation is analogous to that at common law after the jury's verdict before the entry of judgment. During this interval the disappointed party could apply to the Court in banc for a new trial: Australian Iron and Steel Ltd v Greenwood [1962] HCA 32, 107 CLR 308, 315 per Windeyer J. One of the grounds for a new trial at common law was the discovery of fresh evidence. 22In my judgment therefore the motion was made "after judgment" as the primary Judge held [21] and the general rules governing applications for a new trial after verdict or judgment are relevant. However, as the Judge noted, those rules admit of some flexibility, citing CDJ v VAJ [1998] HCA 76, 197 CLR 172 at [89]. 23The relevant power to remit the report for reconsideration is conferred by UCPR Pt 20 r 20.24(1)(c) which provides: "If a report is made under r 20.23, the Court may on a matter of fact or law, or both, do any of the following: (a) ... (b) ... (c) It may, on any ground, remit for further consideration by the referee the whole or any part of the matter referred for a further report. (d) ...". 24The rule confers a broad discretion which must be exercised judicially. The conditions which had to be satisfied at common law before a new trial could be obtained on the ground of fresh evidence are relevant, but there will be at least as much scope for flexibility in their application as the High Court recognised in CDJ v VAJ (above) in relation to the corresponding power of the Full Court of the Family Court. 25The unusual feature in this case is that Mrs Nemeth's affidavit in the Family Court, on which the applicants relied, was only in evidence on the motion as an exhibit to an affidavit by a solicitor Mr Avendra Singh (blue 110). As such it was only hearsay and Mrs Nemeth could not be required for cross examination. The Judge admitted Mr Singh's affidavit over the objection of counsel for Mr Nemeth (black 195). 26Mrs Nemeth later swore an affidavit in the present proceedings (blue 134) which contained direct evidence of the matters relied on to contradict the relevant evidence of Mr Nemeth. Counsel for the first and second defendants did not read this affidavit, but tendered it (black 195) and confirmed that he was not reading it (black 196). The Judge admitted it as exhibit A over the objection of counsel for Mr Nemeth. It was mere hearsay and Mrs Nemeth could not be cross examined on the exhibit. 27This affidavit exhibited 10 affidavits by others (blue 136-7), another affidavit of Mrs Nemeth sworn 19 August 2008, presumably in the Family Court, and a medical report by a Dr Smith. These exhibits were tendered to corroborate Mrs Nemeth's "evidence" in her affidavits. However none of those other affidavits were read in the proceedings and their deponents could not be cross examined. Those affidavits and the medical report constituted additional hearsay. 28The proceedings before the primary Judge were interlocutory and under s 75 of the Evidence Act hearsay evidence was admissible subject to the Judge's discretion to reject it or limit its relevance under ss 135 and 136. 29Orders of the kind sought by the applicants are not lightly made. The conditions at common law for a new trial on the ground of fresh evidence include the credibility of that evidence and the near certainty that its availability at the original trial would have produced a different result. These conditions are of continuing relevance in the exercise of a discretion such as that conferred by UCPR Pt 20 r 20.24(1)(c). 30In McDonald v McDonald [1965] HCA 45, 113 CLR 529, 532 Barwick CJ said: "The discovery subsequent to verdict of admissible credible evidence, which could not have been sooner discovered by the exercise of reasonable diligence ... and which is of such probative value and significance that, taken with the evidence already given at the trial, it will in all probability be decisive of the issue between the parties in a sense opposite to that of the verdict, is a ground for the granting of a new trial." 31The Judge could not possibly be satisfied that if the "evidence" of Mrs Nemeth and the other deponents had been given before the Referee it would have produced a different result. The "evidence" before the Judge was not properly admissible in that form, or entitled to any weight, and he had no opportunity to assess its credibility, probative value, or significance. 32In CDJ v VAJ [1998] HCA 76, 197 CLR 172 at [111] the plurality said: "The power to admit the further evidence exists to serve the demands of justice. Ordinarily, where it is alleged that the admission of new evidence requires a new trial, justice will not be served unless the Full Court is satisfied that the further evidence would have produced a different result if it had been available at the trial. Without that condition being satisfied, it could seldom, if ever, be in the interests of justice to deprive the respondent of the benefit of the orders made by the trial Judge and put that person to the expense, inconvenience and worry of a new trial." 33In my judgment the hearsay material before the Judge in support of this motion could not support a finding that its availability before the Referee "would have produced a different result". This part of the appeal therefore fails. 34The Judge dismissed the application for somewhat different reasons, because he found that Mrs Nemeth's credibility was open to significant challenge and so he could not find that her evidence would have produced a different result [29]-[30]. 35Mrs Nemeth said in her affidavit in the Family Court that she knew nothing about these proceedings. However on 18 March 2003 she swore an affidavit of discovery in the proceedings in which she described herself as the second plaintiff. Moreover ICAC had "found" that she had lied in her sworn evidence before an inquiry, had improperly transferred corporate money into her own bank account, had knowingly given false information to the Liquor Administration Board, and had attempted to remove two exhibits from the hearing in her handbag [28]. 36It is not clear that the findings of ICAC would be admissible in Court proceedings but under SCR Pt 72 r 8 (see now UCPR Pt 20 r 20.20(2)(b)) the Referee was not bound by the rules of evidence. She could and probably would have allowed Mrs Nemeth to be cross examined on those findings and admitted them into evidence. 37In these circumstances the Judge was also entitled to dismiss the motion for the reasons he gave. The Calderbank offers 38The first and second defendants made Calderbank offers to the plaintiffs on 10 August 2005 (blue 392) and 16 August 2005 (blue 393). The substantive hearing before the Referee began on 17 August. 39The first offer, to settle against those defendants for $250,000 inclusive of interest and GST plus costs, was open for acceptance until 10 a.m. Monday 15 August. The second, to settle against those defendants for $350,000 inclusive of interest and GST plus costs was conditional on the plaintiffs indemnifying those defendants from any claim by the third defendant for contribution, indemnity, or damages. It was open for acceptance until 12 noon on 18 August. 40Both offers were allowed to expire. Those defendants first invoked s 109Z on 19 August when they served their draft amended defence. The third defendant did not invoke the section until 26 August (red 1/212) [16]). 41The Judge found the first offer was received at 5:11 p.m. on Thursday 11 August allowing only one business day, for its acceptance (red 1/212 [26]. The first and second defendants had been directed to serve any further evidence by 5 p.m. on 15 August (ibid [25]). This, in the form of an affidavit and a draft affidavit were not served until 4:44 p.m. on 16 August. 42The second offer was "received" at 7:27 p.m. on 16 August, and was open for acceptance for only 1 1/2 days (red 1/212 [22]). At some time that evening the plaintiffs' solicitor also received a copy of the report of Mr McMillan the expert for the first and second defendants (ibid [33]). The Referee based her findings on damages on this report. 43At 12 noon on 17 August the plaintiffs' solicitors sought clarification of the condition for indemnity. There was no response. 44The Judge found (red 1/212 [49]-[50], [57]) that the plaintiffs and their solicitor could not, at that time, assess the likely proportions of their loss for which each defendant would be responsible. He held that the condition for indemnity was not reasonable given the limited time for acceptance, and the lack of any explanation (ibid [51], [58]). 45The Judge also found, because of the shortness of the time for acceptance, and the uncertainty and difficulty created by an offer from only two of the three defendants (ibid [62]-[63]), that it was not unreasonable for the plaintiffs to refuse the offers. 46This was a multi-factorial discretionary decision. Counsel for the appellant and the cross appellant could not identify any error of fact, law, or principle in the Judge's approach. Their submissions were, in substance, an invitation to this Court to re-exercise the discretion without finding error. This is an invitation I have no difficulty in refusing. Apportionment of costs. 47The remaining question in the appeal and cross-appeal is the challenge to the joint and several costs orders. 48The first issue is the construction of s 109Z which, in cases such as this, directed apportionment of a damages award between the various defendants. The appellant and cross appellant submitted that the section required apportionment of costs as well. It provided: (1) After determining an award of damages in a building action ... the Court must give judgment against each contributing party for such proportion of the total amount of damages as the court considers to be just and equitable, having regard to the extent of that party's responsibility for the loss or damage in respect of which the award is made. (2) Despite any Act or law to the contrary, the liability for damages of a contributing party is limited to the amount for which judgment is given against that party by the court. (3) A contributing party cannot be required: (a) to contribute to the damages apportioned to any other person in the same building action or subdivision action, or (b) to indemnify any such other person in respect of those damages. (4) In this section contributing party, in relation to a building action ... means a defendant or other party to the action found by the court to be jointly or severally liable for the damages awarded, or to be awarded, in the action." 49It was common ground that this was a building action for this purpose. 50The Judge entered separate judgments against each defendant to reflect his or its responsibility for the plaintiffs' damages. At common law concurrent tortfeasors whose independent acts caused the same damage were jointly and severally liable for the whole damage regardless of their individual responsibilities. In Spiers v Caledonian Collieries Ltd (1956) 57 SR (NSW) 483 the Full Court held that the Law Reform (Miscellaneous Provisions) Act 1946 had not altered the law, and questions of contribution between concurrent tortfeasors were of no concern to the plaintiff. In practice joint and several costs orders were made against such defendants. 51The distinction between damages and costs is well known and the plaintiffs' costs of the present proceedings could not have been recovered as part of their damages. Costs are awarded as a partial indemnity to the successful party for legal expenses incurred in the proceedings: Gundry v Sainsbury [1910] 1 KB 645 CA, 649; Cachia v Hanes [1994] HCA 14, 179 CLR 403, 410-411. 52Section 109Z(1) refers to "an award of damages" and directs the entry of separate judgments against each contributing party "for such proportion of the total amount of damages" as the Court considers just etc to reflect "that party's responsibility for the loss or damage in respect of which the award is made", (emphasis supplied) that is the amount of the award referred to. Subsection (2) limits a contributing party's liability for damages to the amount for which judgment is given against it in accordance with subs (1). Subsections (3) and (4) refer only to damages. The section is silent on the question of costs. 53The Court was not referred to the proceedings in Parliament on the relevant Bill. Legal costs are an everyday feature of litigation and if Parliament had intended to change the law and practice relating to orders for costs it would have been very easy to say so. In my opinion s 109Z did not require the costs to be apportioned. 54Although this section deprived a plaintiff of the common law right to a joint and several judgment against all concurrent tortfeasors damages still had to be proved against all defendants, and plaintiffs had to establish the responsibility of each. This required proof of the causative potency and culpability of each in relation to the causative potency and culpability of the others. These plaintiffs had to prove that the excavation caused the damage to their house, the quantum of that damage, and the separate responsibilities of the defendants. 55The whole of the plaintiffs' costs were therefore incurred in proving the case against each of the defendants. If Prynew had never been sued the plaintiffs would still have had to prove the case against it to establish the responsibility of the others. 56There is therefore substantial justice in joint and several costs orders, although they impose additional burdens on the second and third defendants because of the apparent insolvency of the first. 57The other point taken by Mr Inatey SC, who appeared with Mr Kettle for Piling, was based on the wide discretion as to costs conferred by s 98 of the Civil Procedure Act and the rules. Section 98(1)(a) and (b) provide: "(1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and what extent costs are to be paid ...". 58UCPR Pt 42 r 42.1 provides: "Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs." 59The order for costs is to "follow the event" unless the Judge otherwise orders. The event here was the recovery of judgments against all defendants. 60The argument on costs before the Judge appears to have been by written submissions. These relevantly comprised the plaintiffs' undated submissions in chief (black 264), Piling's submissions of 18 July 2008 (black 339), and the plaintiff's submissions in reply of 3 April 2009 (black 308). 61The timetable for written submissions was interrupted by the second motion to re-open filed on 30 July 2008 in which judgment was not given until 23 February 2009. 62Piling's written submissions covered matters other than the effect of s 109Z. The Judge accepted its submission (black 343-4) that the plaintiffs should pay its costs of the five day hearing on the cross motions for the adoption or rejection of the report (red 1/241 Order 6). Piling's primary submission for the rest of the proceedings was that each party should pay its own costs (black 344 [24]) because of the multiple issues [25]. 63Reference was also made to the Court's discretion to refuse costs to a successful party [30], and it relied on the offers of compromise made by the other defendants [31]-[33]. Finally it submitted [36] that it was "appropriate that the Court's broad discretion be exercised to apportion costs in any event". 64The grounds in the notice of cross appeal (red 1/270) were that the Judge erred in failing to apportion costs with the damages and in failing to make no order as to costs from 18 August 2005, when the second offer of compromise lapsed. Both grounds have failed. However the oral submissions of Mr Inatey canvassed matters outside those grounds. 65His first point was that the Judge "failed to have regard to the discretion ... under s 98" (T 34), and "simply did not address it" (T 35). He had not considered the issues and just categorised "the event" as a win or loss (T 36). 66Mr Inatey referred to Gunston v Lawley [2008] VSC 97 [65] where Byrne J said: "Under the proportional liability scheme a plaintiff is, in effect, suing each concurrent wrongdoer separately and recovers a separate judgment against it. This is such a fundamental change from the position which previously existed that courts must struggle to rid themselves of concepts which depend upon the outmoded joint and several solidary liability". 67Mr Inatey argued that there were a lot of discrete issues peculiar to one or other of the defendants (T 40, 41). 68Mr Robertson, counsel for Mr Nemeth referred to Piling's written submissions below, and said that the Judge was never asked to make orders for costs based on the time taken up by separate issues in the reference (T 44, 46-7), and he could not be criticised for not doing so. 69In my judgment the wider grounds urged in support of the cross appeal should fail. The general practice of the Court is to make joint and several orders for costs against defendants where their liability depends on a common substratum of fact: Ryan v South Sydney Junior Rugby League Club Ltd [1975] 2 NSWLR 660, 663 (challenge to a void election); TPC v Nicholas Enterprises Pty Ltd (1979) 23 ALR 201, 210 (unlawful price fixing); and Rushcutters Bay Smash Repairs v H McKenzie Netmakers [2003] NSWSC 670 (separate judgments for restitution against different defendants) and the cases there cited. 70There was a common substratum of fact in this case and issues relating to the culpability and causative effect of the acts and omissions of each defendant were relevant to the claims against the others. There were in truth no separate issues. The claim against each defendant depended in part upon the claim against the others. 71There are also discretionary reasons for refusing to entertain these wider grounds which were not raised below, and are outside the notice of cross appeal. As Beazley JA said the Court does not have the information needed to re-exercise the discretion, nor did it have any assistance in doing so (T 59). The Court does not have the benefit either of relevant reasons from the Judge or detailed written submissions. The cross appeal should be dismissed. 72The remedy for defendants in cases within what is now s 35 of the Civil Liability Act lies in making timely and appropriate offers of compromise. 73Section 109Z prohibited cross claims for contribution between defendants in respect of the damages, but not claims for contribution in respect of costs payable to the plaintiff. Appropriate cross claims have not been filed but in clear cases, such as the present, this is not necessary: Croston v Vaughan [1938] 1 KB 540 CA. Counsel for Mr Peter Tsu and for Piling consented to this Court making appropriate orders for contribution. 74Judgments will therefore be entered for contribution in favour of and against each of the defendants subject, in the case of Piling, to its set off for the costs payable to it under Order 6 made on 20 July 2009 (red 1/241). The judgments for contribution will only be enforceable by leave if and when a defendant has paid more than its proper share of the costs (UCPR Pt 39 r 39.1(1)(c)). 75The liquidator of Prynew has had no notice of any such claim and leave to proceed may not have been granted. To save costs and avoid further litigation the Court should make appropriate orders for contribution for and against all defendants directing service on the liquidator and reserving liberty for him to apply within 35 days to set aside the orders for contribution for and against the company. The solicitors for Mr Peter Tsu will be directed to promptly serve a copy of these orders on the liquidator of Prynew after they have been formally entered. 76It would not be right to part with this case without acknowledging the quality of the many judgments of the primary Judge in this complex litigation. They were only challenged on limited grounds and those challenges have all failed. 77The following orders should be made: (1) Appeal by Mr Peter Tsu dismissed; (2) Cross appeal by Mr Anthony Nemeth as executor of the estate of the late Ferdinand Nemeth dismissed with no order as to costs; (3) Cross appeal by Piling Contractors (Qld) Pty Ltd (Piling) dismissed; (4) Prynew Pty Ltd (in liq) joined as a submitting respondent and cross respondent; (5) Prynew and Mr Peter Tsu jointly and severally to pay the costs of Mr Ferdinand Nemeth and Mr Anthony Nemeth of the appeal until 17 August 2011 when Prynew discontinued; (6) Mr Peter Tsu to pay Mr Anthony Nemeth's costs of the appeal after 17 August 2011; (7) Piling to pay the costs of Mr Ferdinand Nemeth and Mr Anthony Nemeth of its cross appeal and application for leave to cross appeal; (8) Judgment for Prynew against Mr Peter Tsu for 19%, and against Piling for 25% of the costs payable to the plaintiff under the orders of Macready AsJ of 20 July 2009; (9) Judgment for Mr Peter Tsu against Prynew for 56% and, against Piling for 25% of the costs payable to the plaintiff under the said orders; (10) Judgment for Piling against Prynew for 56% and against Mr Peter Tsu for 19% of the costs payable to the plaintiff under the said orders; (11) The judgments for contribution for and against Piling are subject to its right of set off against the plaintiff for the costs payable to it under Order 6 made by Macready AsJ on 20 July 2009; (12) The solicitors for the appellant are to promptly serve the liquidator of Prynew with a copy of these orders after they have been formally entered. Liberty for the liquidator of Prynew to apply, within 35 days of service on him of a copy of these orders as entered, to set aside Orders 8, 9, and 10 as against it; (13) No order as to the costs of Virginia Nemeth in this Court.

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: 06 March 2012