Veetemp Australasia Pty Ltd v GRD Group NT Pty Ltd [2012] NTSC 93

Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322, referred to

SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323; Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd [1993] FCA 259; Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107; Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited [2006] NSWSC 583; Gagner Pty Limited v Canturi Corporation Pty Ltd, [2009] NSWCA 413, applied.

Veetemp Australasia Pty Ltd v GRD Group NT Pty Ltd [2012] NTSC 93

[1] This appeal from the Local Court arises out of two separate disputes relating to air-conditioning and other works performed by the appellant on behalf of the respondent at the Darwin Trailer Boat Club and at a development in Brewery Lane, Woolner. The right of appeal is conferred by s 19 of the Local Court Act and is restricted to questions of law.

• [2] There were numerous grounds of appeal. Ground 1 was withdrawn at the commencement of the hearing. Grounds 2 and 3 are in the following terms:

Ground 2: The learned Magistrate made an error of law in basing his decision on a finding of fact that the written contract would be entered into between the parties when:

(a) that fact was not pleaded by the (respondent);

(b) there was no pleading that there was any breach of the oral term to enter into the written contract;

(c) there was no pleading that the defendant and the plaintiff's servants and/or agents orally agreed they would enter into the written contract in the same terms as the signed Trailer Boat Club Contract.

Ground 3: That there be leave granted to the appellant to adduce fresh evidence of Desmond Kuhl in relation to the correspondence (dated) 9 February 2009 and regarding any discussions with Ron Day of the respondent concerning the written contract that would be entered into for the Brewery Lane contract.

[3] These grounds of appeal related to the terms and conditions of the Brewery Lane contract. The Trailer Boat Club work was undertaken first and in that regard the parties entered into a signed written contract. Thereafter the parties negotiated the terms and conditions of the Brewery Lane contract. It was the contention of the appellant that the parties intended that they would be bound by the terms of a contract based upon the Trailer Boat Club contract which would be the subject of additional terms to be agreed. It was the contention of the respondent that the terms of the contract would be the same as those entered into for the Trailer Boat Club work, the terms of which were reflected in a document which became exhibit P 44. There was no dispute that the appellant was presented with, but did not execute, a contract in the form of exhibit P 44. The appellant did not communicate any rejection of the terms of the document but, at a later time after work was underway, requested amendments to the document.

[4] In relation to the terms of the agreement the decisive issue is the intention of the parties. It was agreed before the Local Court that the intention of the parties in relation to the contractual relations was to be objectively determined from all the surrounding facts and circumstances of the relationship between the parties including the relevant documentation, being exhibit P 44.[1]

[5] The magistrate concluded that the terms of the contract should be as postulated by the respondent. His Honour reviewed the surrounding circumstances and stated:

In my opinion, those circumstances collectively - and objectively - establish the true contract between the parties, including its terms. Accordingly, I am reasonably satisfied, on the balance of probabilities, that the subject contract was comprised by exhibit P 44. The matters in dispute between the parties are to be determined by reference to the contractual terms contained therein. I have reached that conclusion on the basis of the pre-contractual negotiations between the parties and all the contextual circumstances in accordance with the approach taken in GR Securities v Baulkham Hills Private Hospital Pty Ltd.[2] However, further, and in the alternative, I consider that the terms of the written contract - namely those contained in exhibit P 44 - can be inferred from the relationship between the parties and the conduct of the plaintiff.

[6] His Honour took into account a range of matters including the context that the parties had recently been engaged under the Trailer Boat Club contract which was in identical terms to the written contract constituted by exhibit P 44. In addition there was evidence of a conversation between Mr Kuhl (a representative of the appellant) and Mr Day (a representative of the respondent) to the effect that the parties would adopt a contract which would be "the same" as the Trailer Boat Club contract.

[7] Mr Day gave evidence of this conversation. Mr Kuhl was not called to give evidence. The complaint of the appellant was that the conversation between the representatives had not been pleaded, nor had it been pleaded that the conversation amounted to an oral agreement that the parties would enter into a written contract in the same terms as the signed Trailer Boat Club contract. The complaint reflects a misunderstanding of the reasons of the magistrate. His Honour did not determine that the parties had entered into such an oral agreement. His Honour took into account those discussions as part of the surrounding circumstances indicating the intentions of the parties. It was but one factor. The discussions were matters of evidence and, in the circumstances, were not required to be pleaded.[3]

[8] The appellant did not complain of the approach adopted by his Honour but rather sought leave to adduce "fresh evidence" of Mr Kulh's account of the conversation. I was supplied with and read an affidavit from Mr Kulh as to the evidence he would give in the event that leave was granted. However, as counsel for the appellant conceded, the evidence was not "fresh" as that expression is known to the law. At the trial the appellant did not object to the evidence of the conversation being led from Mr Day and did not seek to call Mr Kuhl to give evidence in response despite there being opportunity to do so. In all the circumstances I decline to receive the affidavit into evidence.

[9] In my opinion the learned magistrate did not err in law in the approach taken to ascertaining the terms of the contract. These grounds of appeal are not made out.

Ground 4: The learned Magistrate made an error of law in finding that the respondent was entitled to GST payable on -

(a) the damages assessed on the Trailer Boat Club works and the Brewery Lane works;

(b) the Brewery Lane liquidated damages; and

(c) the rectification works already undertaken by others.

[10] The appellant argued that his Honour failed to correctly apply the law in relation to the Goods and Services Tax when assessing the successful claims of the respondent for damages in relation to each of the subcontracts.

[11] The appellant referred to the New South Wales Court of Appeal decision in Gagner Pty Limited v Canturi Corporation Pty Ltd[4] where the impact of the GST upon awards of damages was considered and it was pointed out that consideration must be given as to "how the compensation principle applies to an individual plaintiff when deciding whether an award of damages should include the GST that is payable on the individual items that go to make up the award of damages". It was then said:

In summary, as the GST legislation currently stands, if the plaintiff in an action in tort is registered for GST purposes, and stands to receive an input credit for any GST payments incurred in making good its damage, and there is no impediment to the plaintiff receiving the full benefit of the input credit, that GST amount should be excluded from the quantum of damages recoverable.

[12] In a Commissioner's Ruling[5] relating to GST and court orders it was said that:

110. With a dispute over a damages claim, the subject of the dispute does not constitute a supply made by the aggrieved party. If a payment made under a court order is wholly in respect of such a claim, the payment will not be consideration for a supply.

[13] In the present matter there was no dispute that those principles should apply. The issue was the manner in which they should be applied. Damages in the present case were awarded as compensation for loss rather than the supply of goods. The appellant claimed that in determining the outcome of these proceedings his Honour incorrectly adopted figures provided by the respondent.

[14] In relation to the Trailer Boat Club the relevant figures to be considered were allowances for identified defects being: $5000 for the Paircoil damages, an amount of $220.40 for the Eyles defect and the sum of $635 for the condensate drains defect. These figures are exclusive of GST.

[15] In relation to the Brewery Lane contract the relevant figures were an award of liquidated damages in the sum of $44,850 and two allowances for defects being pipes at $300 and a blocked drain at $150. These figures are also exclusive of GST.

[16] The complaint of the appellant was that the calculations accepted by his Honour included the GST payable on those items. It was submitted that error occurred in assessing GST as being payable on the individual components of the judgment. It was argued that to award a figure plus GST would permit the respondent to "double dip" by having GST on the judgment without the requirement to account for the GST to the Australian Taxation Office.

[17] It was further submitted that these "miscalculations" were compounded by the fact that interest was made payable on the sum outstanding in relation to each contract.

[18] The respondent accepted that awards of damages are not generally liable to GST. However, it was submitted that his Honour correctly approached the issue of how GST was to be incorporated into the calculations in the context of the particular subcontracts governing the relationship between the appellant and the respondent in relation to the Trailer Boat Club works and the Brewery Lane works.

[19] In each case the terms of the subcontract provided for the method by which any adjustment should be made to the subcontract price. The "subcontract price" was defined in each subcontract to be the amount specified in the subcontract particulars "adjusted from time to time by any additions or deductions required to be made under this contract". In relation to the correction of defects it was provided that, where the subcontractor (in this case the appellant) was responsible for the defect, "the subcontract price will be reduced by the amount determined by the contractor (the respondent) which represents the cost of correcting the defect". Clause 12.6 then provided a right of set-off which permitted the contractor to "deduct from monies otherwise due to the subcontractor":

• (a) any debt or other monies due from the subcontractor to the contractor; or

(b) any claim to money which the contractor may have against the subcontractor whether for damages (including liquidated damages) or otherwise.

[20] His Honour adopted the approach of determining the contract sum, then establishing the contract sum net of GST. Thereafter his Honour made adjustments to that sum in order to allow for the adjustments required by virtue of variations and by reference to defects and in respect of liquidated damages. Each of those adjustments was made net of GST. The effect of proceeding in this way was to remove any distortion which arose by virtue of GST being included in the contract sum and in each of the adjustments.

[21] When the final amount payable net of GST had been determined the magistrate added the sum due in respect of GST relating to the whole of the contract sum. GST was added in when the final figure had been determined through this process. Arguably his Honour erred in adding this amount to the whole of the contract sum. However the effect of the error does not manifest itself in the manner submitted by the appellant. The calculations of the appellant erroneously factored in the GST component in respect of the amount claimed as the "Balance payable by Respondent". In so doing, the appellant's calculations were infected by the same mistake the appellant contended infected the magistrate's calculation. Both suggested methods of calculation would result in a party retaining a GST component that forms part of its GST obligations. In my opinion, the correct approach was to exclude from all calculations GST including in relation to monies already paid by the respondent along with GST payable on allowances for defects and variations.

[22] Having regard to the net positions of each party after fulfilling all GST obligations this calculation leads to a conclusion that the award provided by his Honour resulted in an error in favour of the appellant. The calculations are set out in the attached schedule. There has been no challenge by the respondent to the figures provided by his Honour and there is no cross-appeal. In all the circumstances the appellant was no worse off by virtue of the miscalculation and no miscarriage of justice occurred.

[23] In any event, any error made by the magistrate was a miscalculation which, in the circumstances, would amount to an error of fact rather than an error of law. An appeal is only available in relation to an error of law.

[24] The magistrate dealt with the question of costs in ex tempore reasons delivered on 20 July 2012. His Honour noted that the parties agreed that costs should be set at 100% of the Supreme Court scale. It was also noted that, whilst costs are within the discretion of the Court, normally costs will follow the event. Nevertheless there will be circumstances where it is appropriate to depart from that principle especially if the result would not be fair as between the parties.

[25] In cases where there is a mixed outcome in proceedings, such as the present case, the question of apportionment is very much a matter for the discretion of the trial judge.[6] In Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [7] it was said that fairness should dictate how the discretion to award costs is to be exercised. If an issue by issue approach will produce a result that is fairer than the traditional rule then such an approach should be applied. Arithmetical precision is not required and the assessment will often be rough and ready but will have the virtues of both fairness and reasonableness which are lacking in the application of the traditional rule.

[26] In this case the magistrate noted that the respondent had submitted that a single costs order should be made. His Honour rejected the request through concern that it did not achieve "a fair result" because the different issues may have given rise to different levels of costs incurred.

[27] At the time of making the order the magistrate had completed a significant hearing and delivered detailed reasons for decision. Parties addressed him on the issues relevant to the question of costs and as to the best method of achieving fairness. In making his order the magistrate said:

In this matter I have been asked to look carefully at the issues that were dealt with at the hearing. The amount of time that was taken up in dealing with the various issues, and making some assessment as to the significance of the issues and although not adopting a scientific approach to that exercise to take a broad brush approach but at the least to come to some view about the court's preoccupation with the issues and indeed the parties preoccupation of the issues, also taking into account the relative success of the parties balancing that out and factoring that into the equation.

I think that it is necessary not only to take into account the monetary success and that is in terms of the - of the amount that has been recovered, but also the significance of the issues at the hearing and again as to the time they consumed. Mr McConnel submitted that at the end of the day, and this before taking into account any offers of settlement, that it would be appropriate for the court to order the plaintiff to pay 25% of the defendant's costs of the action.

[28] His Honour then made orders in light of his assessment of the level of success of the parties and the time the respective issues occupied in the hearing. The magistrate made an order that, for the period up to 2 November 2010, the defendant should pay 15% of the plaintiff's costs of the proceedings and the plaintiff should pay 35% of the defendant's costs of the proceedings. It was ordered that the plaintiff pay 100% of the defendant's costs of the proceedings after 2 November 2010 because of the impact of an offer of settlement made at that time.

[29] The appellant complained that the magistrate erred in law in failing to provide sufficient reasons for the adopted apportionment considering various matters which the appellant submitted should have been taken into account. Counsel for the appellant embarked upon a detailed breakdown of the issues and arguments as to which each party was successful. In reply the respondent entered into a similarly detailed argument in relation to the same issues.

[30] It is apparent from the remarks of the magistrate that his Honour stood back and looked at the complex proceedings that had just been resolved and used a broad brush approach to achieve the result that he regarded as fair. As has been observed there is no requirement to enter into any detailed analysis or to apply arithmetical precision to the process. There is no complaint that his Honour did not correctly identify and apply the law. The complaint is with the factual conclusions reached by his Honour in so doing. This is not a question of law which gives rise to a right to appeal but rather a question of fact. I see no reason to interfere.

[31] The appellant also complained as to the order made regarding costs from 2 November 2010. At the time of the hearing before the magistrate there had been two offers of settlement upon which the respondent sought to rely concerning the issue of costs. In relation to the first of those offers the magistrate refused to consider it on the basis that the offer was open for "half a day" which was a time his Honour regarded as "unreasonable". There was no challenge to that decision.

[32] The second offer was made on 19 October 2010 and expired on 2 November 2010. That offer was to the effect that the respondent would pay to the appellant the "amount of $20,000 in full and final settlement of this matter, on the basis that your client provides my client with a written indemnity in respect of the defective work at the Darwin Trailer Boat Club". In relation to this offer the magistrate concluded:

In my view, knowing what I do know about the extent of this litigation and my own view of the costs that would have been incurred since the time that offer lapsed, in my view the plaintiff would have been better off if it accepted - if it had accepted that offer than it is now. In my opinion it is appropriate to make an order that the plaintiff pay 100% of the defendant's costs as and from 2 November.

[33] The appellant had a series of complaints regarding this decision. The first was that the letter did not "meet the precision required as a Calderbank offer". The concept of a Calderbank offer is well-known. It is the name given to the letter which was employed in the case of that name and is one which makes an offer of settlement on a "without prejudice" basis and warns that the letter will be relied upon on the question of costs if and when the issue arises.[8] A Court may have regard to a Calderbank offer in relation to the issue of costs when the offer is not accepted and the party in receipt of the offer ends up worse off than if the offer had been accepted.[9] At the time of determining whether that be so, the surrounding circumstances of the particular case need to be considered and the reasonableness of the failure of the party to accept the offer determined. The question is whether the failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs.

[34] The matters of complaint regarding the lack of precision referred to by the appellant were that the offer made in the letter was "inclusive of costs" and that the offer required the appellant to provide the respondent "with a written indemnity in respect of the defective work at the Darwin Trailer Boat Club".

[35] The purpose of a Calderbank letter is the promotion of settlement of disputes. One reason for the decision of a litigant not to accept an offer being characterised as reasonable may arise from the practical difficulties in determining the impact of the proposed terms of settlement. In some cases an offer to settle "inclusive of costs" may mean that the party concerned cannot reasonably accept the offer because it does not have sufficient information as to what those costs might be. It may not be possible for the party to determine the appropriate amount to attribute to the substantive claim and the costs incurred in advancing it.[10] However this is not such a case. The costs to be considered in this case were the costs of the appellant itself which must have been readily assessable by the appellant.

[36] As to the complaint that the offer required an undertaking on the part of the appellant to provide an indemnity in relation to the defective work at the Trailer Boat Club this was also sufficiently clear as to enable the appellant to make an assessment of what may be involved. The alleged defective work was identified and the appellant had expert evidence on that topic which it subsequently adduced at the trial. It was the case for the appellant that the work was not defective and it must have known what was involved. That the appellant had the information available to it to understand what was involved is reflected in the fact that, during the course of the trial in the Local Court, counsel appearing on behalf of the appellant said:

I can indicate now, your Honour, that my client undertakes to (the respondent) and to this court that in the event a finding of a defect to (the Trailer Boat Club) in connection with installation is found, we will undertake the necessary rectification work to rectify any defect to the full extent it is found.

[37] The appellant asserted that the magistrate did not have sufficient information to enable his Honour to conclude that the appellant would have been "better off" had the offer been accepted. The magistrate had ample evidence to do so. The appellant was awarded $15,172.92, a figure significantly less than the sum of $20,000 offered in the Calderbank letter. At the time of concluding that the appellant was worse off for not having accepted the offer his Honour was aware of the costs orders he had just made both in favour of and against the appellant. The appellant was to recover only 15% of its costs and also had to pay the respondent 35% of the respondent's costs of the action. There could be little doubt that the effect of the costs orders would be that the costs payable by the appellant would exceed the sum of $15,172.92 which had been awarded to the appellant. His Honour was well placed to make the determination that the appellant would have been better off to accept the original offer.

[38] I see no error of law on the part of the magistrate.

[39] In my opinion each of the grounds of appeal is without merit. The appeal is dismissed.

[1] GR Securities v Baulkham Hills Private Hospital Pty Ltd; (1986) 40 NSWLR 631 at 634.

[2] (1986) 40 NSWLR 631.

[4] [2009] NSWCA 413 at [150] and [151] per Campbell AJ.

[5] Goods and Services Tax Ruling: GSTR 2001/4.

[6]Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd [1993] FCA 259 at [29].

[7] [2008] FCAFC 107 at [5]. This case was appealed to the High Court in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8 however the issue on appeal was confined to the quantity of damages.

[8] Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322 at [97]- [98].

[9] SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37].

[10] Baulderstone Hornibrook Engineering Pty Limited v Gordian Runoff Limited [2006] NSWSC 583 at [40].