Yamo Smallgoods Pty Ltd v Australian Commercial Solutions Pty Limited

The Plaintiff's submissions

1. The Plaintiff's primary submissions recorded that the parties were "still in discussions regarding interest. To the extent interest cannot be agreed brief submissions will be made in reply". The Court will receive any submissions made in that regard and determine any dispute with respect to interest in the event that the parties do not reach agreement with respect to interest.
2. After recounting the history of the proceedings up to the date of the Referee's report issued pursuant to orders made by the Court on 18 November 2021, the Plaintiff submitted [3.4] that the claims brought by it and the success which the Plaintiff obtained were, in summary: 1. Amount claimed for defects $288,081.82 - amount awarded $7,101; 2. Amount claimed for completion costs $270,773 - amount awarded $0; 3. Amount claimed for overpayment $24,092 - amount awarded $0; 4. Amount claimed for defective wall panel installation $29,811 - amount awarded $7,464; 5. Amount claimed for liquidated damages $99,000 - amount awarded $55,000.
3. The effect of those outcomes was that the Plaintiff was awarded $69,575 with respect to amounts claimed totalling $711,757.82 [3.4(a)]. The Plaintiff submitted [3.4(b)] that, pursuant to its Cross-Claim, the Defendant was awarded $9,644.80 with respect to four components of a Cross-Claim for $394,446 in total, made up as: 1. Claim for balance due under contract $242,592 - amount awarded $4,950; 2. Claim for variations $47,819 - amount awarded $4,694.80; 3. Claim for loss of profit under the contract $56,222 - amount awarded $0; 4. Claim for reimbursement of costs paid for incomplete works as at 27 May 2017 $23,721 - amount awarded $0.
4. The Plaintiff referred [4] to the "cost principles" pursuant to Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) which provides that the Court is to order that 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".
5. By reference to the decision in Break Fast Investments Pty Limited v Perikles Giannopoulos (also known as Perry Giannopoulos) & Anor (No 7) [2012] NSWSC 495 the Plaintiff submitted that costs were awarded to compensate the successful party for the expense of being put to the necessity of litigation, that a wholly successful party should ordinarily be awarded costs, unless good reason to the contrary was demonstrated and the discretion to order costs must be exercised judicially and not against the successful party, except for some reason connected with the proceedings, sometimes referred to as "disentitling conduct". The Court agrees with those contentions. As will be seen, the present dispute does not enable simple global findings to be made with respect to the "success" of either party in the proceedings.
6. The Plaintiff submitted that there was no suggestion and/or evidentiary foundation for either party alleging that the other had engaged in disentitling conduct of any kind. The Court agrees with that contention.
7. The Plaintiff relied significantly on a formal Offer of Compromise dated 17 February 2022 and a "Calderbank offer" made the same day. The Offer of Compromise provided that the Plaintiff pay the Defendant $1,000 plus the costs of the proceedings for both claims on the ordinary basis. That offer was evidenced by Annexure A to the Affidavit of Mr Adelstein and was submitted to fall within, and enliven the operation of UCPR 42.13A(2) and (3).
8. The offer was made four days prior to the hearing before the Referee being due to commence. It was submitted [5.5] that as the Plaintiff had "bettered the terms of the Offer of Compromise, the onus is on [the Defendant] to demonstrate why the Court should not simply apply the rules and award indemnity costs as prescribed" (Leach v The Nominal Defendant (QBE Insurance (Australia) Ltd) (No 2) [2014] NSWCA 391). It was submitted at [5.6], that if the Defendant alleged that it had not been in a position to "properly consider the terms of the Offer of Compromise, then it ought to (but did not issue) a notice under UCPR 20.26(4)".
9. The Plaintiff also relied [5.7] on its Calderbank offer of 17 February 2022, which was submitted to have been "less generous than the Offer of Compromise" in that the Plaintiff was to pay the Defendant $1,000 with each party paying its own costs. The Calderbank offer is evidenced by Annexure B to Mr Adelstein's Affidavit. It was conceded [5.8] that the making of a Calderbank offer that is bettered by the offeror does not in itself entitle the offeror to an order for costs (Jones v Bradley (No 2) [2003] NSWCA 258). It was submitted that the exercise of discretion depends on all the relevant circumstances of the case (SMEC Testing Services Pty Limited v Campbelltown City Council [2000] NSWCA 323).
10. The Plaintiff submitted [5.9] that two "central issues" governing the discretion were whether the Plaintiff could demonstrate that the Calderbank offer: 1. contained a genuine offer of compromise; and 2. whether it was unreasonable for the Defendant not to accept it (Belflora Pty Ltd v Vinflora Pty Ltd and Anor [2020] NSWSC 1374).
11. The Plaintiff referred [5.11] to the decision of the Court of Appeal of the Supreme Court of Victoria in Hazeldene's Chicken Farm Pty Limited v Victorian WorkCover Authority (No 2) [2005] VSCA 298, in which it was submitted that the factors relevant to determining whether the rejection of an offer was unreasonable included: 1. the stage of the proceedings at which the offer was received; 2. the time allowed to the offeree to consider the offer; 3. the extent of the compromise offered; 4. the offeree's prospects of success, assessed as at the date of the offer; 5. the clarity with which the terms of the offer were expressed; 6. whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejection of it.
12. By reference to those factors the Plaintiff submitted at [5.12] that: 1. all material had been served, and the Defendant was properly apprised as to the issues as to the issues likely to arise in the case; 2. the Defendant had all the information required to properly assess the merits of its defence and/or the claims brought by it; 3. there was a sufficient period of time for the Defendant to consider its position and assess the merits of the Calderbank offer in circumstances where the primary issues had already been pleaded had been addressed in evidence which had been served; 4. that, if the Defendant required more time to consider the Calderbank offer it could have, but did not, seek such time; 5. the primary matters in each party's case were not overly complex with the issues clearly defined in the pleadings and evidence served; 6. the motives of [the Defendant] in pursuing the claim "may be more attributable to matters that go above and beyond commercial considerations"; 7. the indemnity costs order is appropriate to compensate the Plaintiff for its trouble, expense and delay occasioned by proceeding to a fully contested reference; 8. the Defendant had the benefit of experienced legal representatives including Counsel when the Offer of Compromise and the Calderbank offer were made; 9. the Calderbank offer expressly foreshadowed that an application for indemnity costs would be made and properly referred to and engaged the principles in Calderbank v Calderbank [1975] 3 All ER 333; 10. the issues were clearly defined by comprehensive pleadings and evidence served which provided "a proper foundation for an informed choice to be made as to whether or not to accept the offer"; 11. the Defendant must have been "aware that a rejection of the Calderbank offer would only increase the costs both sides had already incurred"; 12. an indemnity costs order is appropriate to compensate the Plaintiff for the trouble and expense occasioned by a fully contested reference all of which could have been avoided had the Defendant accepted the Calderbank offer made by the Plaintiff; 13. an indemnity costs order is appropriate to compensate the Plaintiff for its trouble, expense and delay occasioned by a fully contested hearing.
13. Under the heading "Apportionable Issues" the Plaintiff referred [6] to the principles with respect to making proportional costs orders and submitted that the Court takes a "pragmatic approach" in that regard "taking into consideration the success (or lack of success) of the parties on an issues basis" (Chen & Ors v Chan & Ors [2009] VSCA 233).
14. Although the Plaintiff sought such relief in the alternative, it submitted [6.3] that apportionment of costs "does not arise in this case", for reasons which it articulated at [6.4] to [6.6]. The Plaintiff ultimately submitted in that regard [6.6] that "both parties raised and pursued multiple issues that took a significant period of hearing time, and which resulted in [the Defendant] obtaining no success or limited success".
15. The Plaintiff submitted [6.7] that it had achieved "partial success" with respect to the defective works claim, "complete success" with respect to the termination claim, "no success" with respect to the overpayment claim, "partial success" with respect to the defective wall panel installation and "complete success" with respect to the liquidated damages claim. Although the first four of those descriptions appears accurate, the Court notes that the table of asserted success and failure earlier advanced by the Plaintiff asserted that $55,000 had been awarded with respect to a claim for liquidated damages in the sum of $99,000. The Plaintiff was "partially" successful on that issue.
16. The Defendant's outcomes were submitted to have involved "partial success" with respect to the claim for the balance due under contract and the claim for variations, and "no success" with respect to the termination claim and the claim for loss of profit under the contract.
17. In reliance upon its submissions and the tables to which the Court has referred, the Plaintiff submitted [6.9] that "given the somewhat mixed level of success both parties obtained, it is not appropriate or practical to apportion costs on an issue by issue basis". It was ultimately submitted [6.10] that given: "(a) the limited success [the Defendant] on its claims in respect of a much larger and longer case brought and pursued by it; (b) the limited but more substantial success [the Plaintiff] obtained on its claims in respect of a much larger and longer case brought and pursued by it; (c) [the Plaintiff's] efforts to resolve the matter on commercial terms to avoid the cost of a reference; and (d) [the Defendant's] recalcitrant approach to pursue the matter to final determination" the costs order sought by the Plaintiff was appropriate and "properly balances" the interests of the parties in circumstances where it was submitted that the Plaintiff was the only party making genuine efforts to resolve the dispute.
18. The Plaintiff submitted with respect to "proportionality" that, for the reasons advanced by it, if the Court were minded to apportion costs, the Plaintiff's entitlement should only be discounted by 10%.

The Defendant's submissions

1. After referring to the measures of quantitative success and failure of the parties, in essentially the same terms as the Plaintiff submitted, the Defendant relied on offers which it had made in support of its resistance to the Plaintiff's claim. Those offers were annexed to the Affidavit of the Defendant's solicitor, Mr Holmes.
2. On 18 February 2022, the day after the Plaintiff's Offer of Compromise and Calderbank offer were made, the solicitors then acting for the Defendant communicated offers to the solicitors for the Plaintiff in the following terms: "1 As to the Plaintiff's claim contained in the Amended Statement of Claim: A the Plaintiff's claim be dismissed; and B the Plaintiff will pay the Defendant's costs fixed to the sum of $100,000 within 14 days from the date of the acceptance of this offer. 2 As to the Cross-Claimant's claim contained in the Amended Cross-Claim: A the Cross-Claim be dismissed; B the Cross-Defendant will pay the Cross-Claimant's costs fixed to the sum of $50,000 within 14 days from the date of the acceptance of this offer. 3 The Plaintiff and Defendant to each pay half of the costs issued by the Referee, Mr Corsaro to date; and 4 Orders dismissing both claims to be filed in the District Court proceedings within 7 days from receipt of all payments above."
3. The offer was expressed to be made as a Calderbank offer.
4. On 18 February 2022 the Defendant's then solicitors filed an Offer of Compromise pursuant to the UCPR which provided for orders to be made by consent: "1 Judgment in favour of the Defendant against the Plaintiff. 2 Judgment in favour of the Cross-Claimant against the Cross-Defendant in the sum of $1,000. 3 This offer is open for acceptance until 10.00 a.m. on Monday 21 February 2022. 4 This Offer of Compromise is made in accordance with Rule 20.26 of the Uniform Civil Procedure Rules 2005."
5. The Defendant submitted with respect to "costs generally" that [17] "The proper exercise of the Court's discretion requires the Court to do justice between the parties and to exercise the discretion having regard to relevant considerations in a manner which is not arbitrary or capricious (Oshlack v Richmond River Council [1988] HCA 11; (1998) 193 CLR 72)". The Defendant also relied [18] on the Judgment of the Court of Appeal in Commonwealth of Australia v Gretton [2008] NSWCA 117, in which it was said that costs should "be paid in a way that is fair, having regard to what the Court considers to be the responsibility of each party for the incurring of the costs". The Court agrees with those contentions.
6. The Defendant submitted [2] in reliance upon the decision in Bostick Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 that the principles governing the making of an order as to costs reflect the "time taken in dealing with a particular issue in which the successful party in the proceedings or on the appeal did not succeed". It was submitted that the authorities established that [20]: "• Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: ... • In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: …. A similar approach is adopted on appeal. • If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue: …. • Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed: …. • A separable issue can relate to "any disputed question of fact or law" before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: …. • Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation: …"
7. The Defendant referred [21] to the decision in Ryde Developments Pty Limited v The Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40 in which the Court of Appeal noted the wide discretion reposed in the Court with respect to costs, and that an "event" may be "categorised in more than one way" but generally "refers to the result of the claim or counterclaim as the case may be, and may be understood as referring to the practical result of a particular claim".
8. The Defendant further relied [22] on the decision in Nadilo v Eagleton [2021] NSWCA 232 where the Court of Appeal accepted, at [6], that "Underlying the general rule that costs follow the event, and the qualifications to it, is the idea that costs should be borne in a way that is fair, having regard to the responsibility of each party for the incurring by the other of the costs".
9. After referring to the provisions of the Rules governing Offers of Compromise and Calderbank offers, by reference to the decision in Whitney v Dream Developments Pty Limited [2013] NSWCA 188 the Defendant disputed that it had not made a valid offer of compromise on 18 February 2022. The Court accepts that contention, but, having regard to the issues for determination, doing so assumes limited significance.
10. The Defendant further submitted [37] that, by having regard to the authorities to which it referred, the principles relevant to the determination of whether a special order for costs should be made where a Calderbank offer had been made were: "(1) there must be a real and genuine element of compromise; (2) the refusal must be unreasonable; (3) the unreasonableness in rejecting an offer must be considered at the time the offer is made, not with the benefit of hindsight; (4) factors relevant to whether the rejection was unreasonable include the stage of the proceedings at which the offer was received, the time allowed to consider the offer, the extent of the compromise offered, the offeree's prospects of success, assessed as at the date of the offer, the clarity with which the terms of the offer were expressed and whether the offer foreshadowed an application for indemnity costs in the event of each [sic] rejection."
11. Under the heading "Consideration" the Defendant submitted [38] that the case was one where "as a matter of fairness and to do justice between the parties, it is appropriate to consider the "event" and the question of costs in the light of issues that were clearly separate from each other and involve significant time and cost and in respect of which an otherwise successful party lost".
12. The Defendant referred in detail [40] to [61] of the Referee's report, noting, accurately, the extent to which the Referee determined matters for and against the Plaintiff and the Defendant. The Court is satisfied that the Defendant's careful analysis of those findings was essentially accurate, an impression not displaced by the Plaintiff's submissions in reply to which reference will shortly be made.
13. The Defendant submitted [62] that: "When looked at in that light and mindful that 'underlying the general rule that costs follow the event, and the qualifications to it, is the idea that costs should be borne in a way that is fair, having regard to the responsibility of each party for the incurring by the other of the costs': (a) [the Plaintiff] should not be entitled to its costs of, and [the Defendant] should be entitled to its costs of meeting [the Plaintiff's] claim that the Contract included the Special Condition; (b) [the Plaintiff] should not be entitled to its costs and [the Defendant] should be entitled to its costs of meeting the defective works claim. (c) [the Plaintiff] should not be entitled to its costs , and [the Defendant] should be entitled to its costs of meeting [the Plaintiff's] over payment claim the claim for the cost to complete the contract works. (d) [the Plaintiff] is entitled to its costs of the liquidated damages claim which would include the proper construction of the Contract to determine the construction period, whether [the Plaintiff] lawfully terminated the Contract, the effect of the 17 May letter and [the Defendant's] claims for extensions of time."
14. It was submitted [63] that "mindful that [the Plaintiff's] expert evidence in chief went entirely to its claims for defective work, overpayment and completion costs, it ought not be entitled to any of its expert evidence costs". It was conceded [64] that "some" of the Plaintiff's expert evidence in reply was relevant to the Defendant's claims for variation costs and extensions of time.
15. The Defendant submitted [65] that the appropriate order in the circumstances was that each party pay its own costs of the Plaintiff's claim. That contention was submitted to be supported by the "bare fact that of its claim for $688,757.82 [the Plaintiff] was only successful for an amount of about $69,000". As earlier recorded, the Defendant was successful in the sum of $9,644.80 with respect to claims totalling $399,446. Those "bare facts", either in dollar or percentage outcome terms in isolation, do not assist the Defendant.
16. Properly, the Defendant acknowledged [67] that if the Court accepted its contentions with respect to the manner of dealing with the question of costs in respect of the Plaintiff's claim, the Defendant would accept that it "would follow that in the light of its limited success on its contract works claim and variations claim that each party pay its own costs of [the Defendant's] claim".
17. The Defendant advanced a number of further reasons why, whether in reliance upon the Offer of Compromise or the Calderbank offer the Plaintiff's application for a special costs order should be rejected. The Offer of Compromise was expressed to offend the provisions of UCPR 20.26(2). That submission was in reliance upon the decision of the Court of Appeal in Whitney, extracts of which the Defendant recorded earlier in its submissions.
18. The crux of the Defendant's contention at [69] that the Plaintiff's Offer of Compromise did not comply with UCPR 20.26(2) was that, although the Offer of Compromise itself did not offend the Rule, when read with the letter from Mr Adelstein enclosing it, the offer was put on the basis that "each party bear its own costs of the proceedings and the cross proceedings and that all existing costs orders be vacated". It was thus submitted that the offer was "effectively" inclusive of costs and intended to operate to defeat the provisions of UCPR 42.13A. UCPR 42.13A provides the consequences where an offer is accepted and there is no provision for costs.
19. The Defendant submitted [70] that it had "put the very same offer back" to the Plaintiff and that, as is not in doubt, the Plaintiff did not accept that offer. It was further submitted that the time to consider the Plaintiff's offers was unreasonable. As recorded earlier, the Defendant's offers were made the following day.
20. The Defendant submitted [72] that, even if it "might be argued" that the Plaintiff's Offer of Compromise complied with UCPR 20.26 and allowed a date for acceptance which was reasonable in all the circumstances, the Court should decline to make a special costs order because: "(1) The offer only allowed one business day for acceptance in circumstances where the case which involved substantial expert and lay evidence was to commence the next business day; (2) It did not involve an element of compromise on [the Defendant's] claim (it required [the Defendant] to accept $1,000 inclusive of costs and to abandon interlocutory costs orders made in its favour) and effectively invited [the Defendant] to capitulate on its claim; (3) It required [the Defendant] to abandon not insignificant costs orders made in its favour for costs thrown away by the vacation of a hearing date and costs on an indemnity basis of and incidental to and thrown away by the filing of an amended claim; (4) It required [the Defendant] to abandon any claim for the substantial cost it had incurred in preparing to meet [the Plaintiff's] claims that the Special Condition formed part of the Contract, [the Plaintiff's] defective works claim and [the Plaintiff's] claim for overpayment and the cost to complete the contract works; (5) As noted above, [the Defendant] put the very same offer back to [the Plaintiff] in accordance with the Rules and without the added requirement that each party bear its own costs of the proceedings and the cross proceedings and that all existing costs orders be vacated, but [the Plaintiff] did not accept the offer."
21. The Defendant's opposition to the making of a special costs order in reliance upon the Plaintiff's Calderbank offer was expressed [73] to be substantially on the same basis.

Plaintiff's submissions in reply

1. In submissions in reply the Plaintiff joined issue with the submissions of the Defendant and, sensibly, did not dispute that the Defendant had misstated any of the principles which were relevant.
2. The Plaintiff engaged [5] with the Defendant's analysis of the comparative success and failure of the parties with respect to their claims and counterclaims. For the six reasons relied upon by it, the Plaintiff disputed the Defendant's contention that its Offer of Compromise of 17 February 2022 offended UCPR 20.26. The Plaintiff reiterated its earlier contention that, in all the circumstances, both parties had a reasonable time to consider the offers to settle made by them.
3. In substance, and for the reasons relied upon by the Plaintiff, it was submitted that Mr Adelstein's covering letter did not, and could not, qualify the terms of the Offer of Compromise. In substance Mr Adelstein's letter was submitted to reflect the effect of the Offer of Compromise but to be incapable of qualifying or varying its terms.

The Defendant's submissions in reply

1. The Defendant/Cross-Claimant filed submissions in reply to the Plaintiff/Cross-Defendant's submissions on 27 July 2023. In its submissions the Defendant reiterated [2] its analysis of the claims made by the Plaintiff and the fate of those claims by reference to the report.
2. It was submitted that, other than with respect to claims for defective work which were found or agreed totalling [$726, $2,485, $3,000] the Plaintiff "lost on every other claim of alleged defective work". The two most significant of those were claims for $42,900 and $65,620.
3. The Defendant referred to the decision in Break Fast Investments Pty Limited v Perikles Giannopoulos (also known as Perry Giannopoulos) & Anor (No 7) at [9], to which the Plaintiff referred in which it was said: "In Howards Storage World Pty Limited v Haviv Holdings Pty Limited [2010] FCAFC 5 (2010) 182 FCR 84, Gray J observed at [7]: "The overriding principle that costs are in the discretion of the court can also be expressed in the terms of the negative proposition that no rule or principle should be applied mechanically in the determination of the questions where costs should lie in any particular case. Attention must always be paid to the particular circumstances of the individual case. The aim is to do substantial justice in relation to costs, based on the outcomes of the various issues in the proceeding, as between the entities that are parties to that proceeding.""
4. With respect to "offers made by Yamo", the Defendant submitted [4] that: "Mindful that there is no particular form for an offer of compromise, when read with the covering letter, it is clear that the Yamo Offer of Compromise is put on the basis that: • Yamo's claim is dismissed, • Yamo pays ACS $1,000.00 in respect of ACS' claim; • that each party is to pay its own cost; and • all previous cost orders of the Court be vacated."
5. It was submitted that the effect of the offer being put was made clear in the covering letter which also "says that the Calderbank offer is made in substantially the same form".
6. The Defendant relied on its having "put the same offer back" to the Plaintiff "without the requirements that each party pay its own costs and that the costs orders already made be vacated".
7. It was submitted that even if the Court was inclined to consider the Offer of Compromise in the absence of the covering letter "the ambiguity regarding what was to occur in respect of costs, would be a reason, even if the Court found that the Offer of Compromise was otherwise in accordance with the rules, for it to otherwise order".
8. The Defendant reiterated its contention that the time for consideration of the offer was unreasonable, involving one business day and over 1,500 pages of documents and 43 questions for the Referee to be considered.
9. The Defendant relied on the decision in Kooee Communications Pty Limited v Primus Telecommunications Pty Limited (No 2) [2008] NSWCA 85 in which Basten JA referred three factors which were submitted to be relevant to a consideration of whether the time for acceptance was reasonable, they being: (i) the extent to which the parties may reasonably be expected to have a clear perception as to the strengths and weaknesses of their positions; (ii) the stage which the proceedings have reached; and (iii) which counterbalances the first two "the distraction from preparing or running a trial caused by the need to address the terms of an offer, provide advice and obtain instructions".
10. In Kooee, Basten JA said at [20]: "20 In considering whether the time allowed for acceptance is "reasonable in all the circumstances" once a trial commences, or indeed final preparation commences, three factors come into play. The first is that both parties may reasonably be expected to have a clear perception of the strengths and weaknesses of their positions, so that the reasonableness of a particular offer may be speedily assessed. Secondly, because significant costs will be accruing on a daily, even an hourly basis, there is a heightened incentive to respond within the time permitted. Thirdly, and counterbalancing the first factor, the need to address the terms of an offer, provide advice and obtain instructions will often be a significant distraction from final preparation." The second factor reads slightly differently to what was submitted by the Defendant, but nothing of significance turns on that.
11. The Defendant reiterated [7] the basis upon which it submitted that its non-acceptance of the Plaintiff's offer was not unreasonable and that the Plaintiff had not discharged its onus in that regard.
12. With respect to "apportionable issue", the Defendant reiterated [8] its earlier submissions that it was "clearly successful in respect of issues that were clearly dominant and separable" which were submitted to include: 1. whether the special condition formed part of the contract; 2. damages for defective work; 3. whether Yamo had overpaid ACS; and 4. whether Yamo was entitled to damages for the cost to complete the work.
13. It was submitted that those were matters in respect of which, if not for other reasons, the Plaintiff ought not be entitled to its costs.
14. The Defendant reiterated [9] the basis of its contention that the Plaintiff "lost on almost all of its defective works claim" and that "although successful on termination, it was unsuccessful in relation to the clearly separable and dominant issue of whether the special condition formed part of the contract".
15. The Defendant further submitted [10] that although the Plaintiff had a "larger success in purely monetary terms in its favour, when one looks at the amounts claimed it also had the biggest loss". It was further submitted that it could not be suggested that the Plaintiff was the "only party making genuine offers to resolve the dispute".
16. Ultimately, with respect to "proportionality" the Defendant submitted [11] that: neither party enjoyed "substantial success; the Defendant was successful in respect of 2.5% of the amount of its claim, the Plaintiff to "a little under 10%" of its claim; that the Plaintiff was unsuccessful in approximately $620,000 of its $688,000 claim whilst the Defendant was unsuccessful in respect of $360,000 of its $370,000 claim. The Defendant submitted that, in effect, the Plaintiff was almost entirely unsuccessful on its defective works claim and that accordingly the Defendant should be entitled to the overwhelming bulk of those costs and the Plaintiff not entitled to any costs in respect of defective work.
17. Without resiling from its primary position, the Defendant further submitted that it "might be said" that the costs to which each party was entitled "balance each other out and no party ought to be entitled to its costs in respect of those claims".

Consideration

1. The submissions of the parties raise a number of issues for determination. The first is whether the Plaintiff should be awarded its costs on some basis. If there is to be an order for costs in favour of the Plaintiff, whether the circumstances justify an award of indemnity costs requires consideration. If there is to be an order for costs on the ordinary or indemnity basis, consideration of whether discounting such costs is appropriate requires consideration.
2. Although, ultimately, having regard to the submissions of the parties it is not determinative, it is necessary to decide whether the Plaintiff's purported Offer of Compromise of 17 February 2022 was valid or, as the Defendant submitted, should be treated as effectively offending the provisions of UCPR 20.26.
3. The Defendant did not suggest that, by its terms, the Plaintiff's Offer of Compromise offended UCPR 20.26. The offer literally complied with the provisions of UCPR 20.26(2)(a). Largely for the reasons advanced by the Plaintiff in its submissions in reply, the Court is not persuaded that the Plaintiff's Offer of Compromise of 17 February 2022 offended UCPR 20.26, either by its terms or by the effect of anything said in the letter Mr Adelstein sent enclosing it.
4. There is little doubt that the Plaintiff secured a better outcome in the proceedings than the outcome which its offers indicated that it was prepared to accept to settle the proceedings. Although the time for consideration of the Plaintiff's offers was short, that did not dissuade the Defendant from making its own offers the following day.
5. The Plaintiff submitted that the Defendant could have availed itself of the provisions of UCPR 20.26(4) and sought further time to fully consider the offer. That the Defendant did not do so is unsurprising given that, as is not in doubt, by the time the parties made their respective offers, they were within days, not all of which are working days, of commencing a 5-day hearing before the Referee. The case had been fully pleaded by that time. Counsel for both parties had presumably been retained. Both parties' evidence, including expert evidence, had been filed. It is improbable that, at the time each party's offer was received by the other party, that party did not have some capacity to evaluate the offers in the light of the perceived strengths and weaknesses of their respective cases. As the Referee's report subsequently confirmed, and is not uncommon in building cases, considerable uncertainty surrounded the outcome of individual issues in the case and, consequently, the likely overall measure of success or failure of each of the parties. Those uncertainties could have been apparent when the offer was received, which is the relevant time for present purposes. Conversely, the Defendant's lay and expert evidence justified reasonable confidence that it could better the Plaintiff's offer.
6. The Court is unable to accept the Defendant's contention that the Plaintiff's Offer of Compromise and Calderbank offer were offers to "capitulate". They involved each party foregoing substantial, and hotly contested claims in circumstances where there was a real likelihood that the costs of litigating their disputes would be substantial, and potentially exceed or be disproportionate to the amount which was ultimately really in dispute in terms of the likely net outcome. The potential for a "points decision" would have been apparent to both parties. Although not advanced by the Defendant's current solicitors, the Defendant's offers involved significantly less indication of compromise than did those of the Plaintiff.
7. Although, as submitted by the Plaintiff, less generous to the Defendant than the Offer of Compromise, the Plaintiff was, on an overall practical basis, substantially more successful monetarily in the proceedings than its Calderbank offer provided. Not insignificantly, the Plaintiff's Offer of Compromise did not seek to vacate any costs orders previously made. To the extent that the Calderbank offer did, both parties had previous costs orders in their favour at the time the offers were made. It is also significant that the Plaintiff's Offer of Compromise provided that it would pay all of the Defendant's costs to that date, which were suggested to have been $430,000 at the time (Affidavit of Mr Holmes paragraph 6, Annexure B, page 12).
8. As the submissions of both parties confirm, however viewed, the outcome of the proceedings resulted in mixed success and failure for both of them. The Plaintiff asserted that minute dissection of the parties' success and failure is artificial and unjustified, whether that is undertaken by reference to the monetary effect of the outcome of the proceedings or, if it be possible, the time taken up by attempting to discern discrete issues in order to determine that it had been successful overall in a practical sense. As is not in doubt, the fact that a party succeeded or failed on a particular issue does not necessarily mean that the issue can be regarded as "discrete". As is also not in doubt and the Defendant has cogently demonstrated, an issue which has significant monetary consequences may not have taken up hearing time, or unnecessary hearing time. The converse has also been shown to be true. However, implicit in the concept of "overall success" is the potential for parties to be successful and unsuccessful on separate or discrete issues in the proceedings.
9. Both parties were substantially unsuccessful with their claims, the Plaintiff by approximately 90% or $600,000, the Defendant by approximately 97.5% or $10,000. In these circumstances, although the Plaintiff achieved a verdict of $59,930.20, finding that it achieved overall success in a practical or other sense is contestable.
10. Section 98 of the Civil Procedure Act 2005 (NSW) provides that, subject to the Rules and any other Act, costs are in the discretion of the Court. The Court has "full power to determine by whom, to whom and to what extent costs are to be paid". The Court may order that costs be awarded on the ordinary basis or on an indemnity basis. Section 98(4) of the Act empowers the Court to make costs up to or from a specified stage of the proceedings, or for the payment of a specified proportion of assessed costs.
11. The Court's powers involve the exercise of a discretion which is unconfined, save that it must be exercised judicially, and not arbitrarily or capriciously, and not upon reasons that are extraneous to the objects of the legislation (Oshlack at 22). The exercise of discretion with respect to costs must be considered in the context of the provisions made in ss 56 to 60 of the Act, and in particular with respect to the overriding purpose articulated in s 56 of the Act (Boral Resources (NSW) Pty Ltd v Gangi [2014] NSWCA 287).
12. The expression "usual order as to costs" recognises the principle that, subject to certain limited exceptions, none of which applies in this case, a successful party in litigation is entitled to an award of costs in its favour (Oshlack at 67). Fairness dictates that the unsuccessful party typically bears the liability for the costs of unsuccessful litigation (Oshlack at 67). There is no automatic rule that costs always follow the event (Foots v Southern Cross Mine Management Pty Limited (2007) 234 CLR 52; [2007] HCA 56).
13. A successful party may be denied some part or all of its costs, whilst an unsuccessful party may be awarded costs, although exceptional circumstances must exist before a successful party is deprived of costs and required to pay an unsuccessful opponent's costs (Arian v Nguyen [2001] NSWCA 5). No such circumstances are present in this case.
14. Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the Court, which are construed liberally (New South Wales v Stanley [2007] NSWCA 330).
15. Where matters upon which the ultimately successful party is unsuccessful took up a significant part of the trial, either through evidence or by argument, the usual rule may be departed from (Sabah Yazgi v Permanent Custodians Ltd (No 2) [2007] NSWCA 306). Similarly, proportional costs orders may be awarded on the basis of success or failure on clearly definable and severable issues (Macquarie International Health Clinic Pty Limited v Sydney South West Area Health Services (No 2) [2011] NSWCA 171).
16. The Plaintiff was literally successful on an overall or practical basis in monetary terms. That is so notwithstanding that the Plaintiff was highly unsuccessful in both percentage and monetary terms. The Defendant was even more unsuccessful in those respects. The Court is disinclined to depart from the usual rule that costs follow the event in this case. To do so would, in the circumstances of this case, involve an impermissible departure from the principles which emerge from the authorities.
17. For the reasons recorded earlier, notwithstanding the asserted impact of the letter from the Plaintiff's solicitors which accompanied its Offer of Compromise and Calderbank offer, the Court is satisfied that UCPR 42.4 is potentially enlivened. It is thus necessary to determine whether there are reasons for not awarding indemnity costs from the date of the Plaintiff's Offer of Compromise. The Plaintiff secured, both on its claim and on an overall basis, a verdict and Judgment which were no less favourable to the Plaintiff than the terms of its Offer of Compromise provided.
18. Similarly, on its claim on an overall basis, the Plaintiff secured a verdict and Judgment which were no less favourable to the Plaintiff than the terms of its Calderbank offer. It is thus necessary to consider whether the Defendant's rejection of the Calderbank offer was unreasonable and enlivens the discretion to award indemnity costs.
19. The Court is not persuaded that an award of indemnity costs is justified in the circumstances of this case, either in reliance upon the Plaintiff's Offer of Compromise or the Plaintiff's Calderbank offer. The reasons for not doing so in reliance upon the Offer of Compromise and for finding that the Defendant's rejection of the Plaintiff's Calderbank offer was not unreasonable in all the circumstances largely overlap.
20. As is not in doubt, the Plaintiff's offers were received shortly prior to the five day hearing before the Referee. Having regard to the complexity of the issues in the proceedings, and the extent of the lay and expert evidence upon which the parties relied, the time which the offers realistically afforded the Defendant in which to consider and reply to them was short, and included a weekend period. Accepting, as Basten JA said in Kooee that "because significant costs will be accruing on a daily, even an hourly basis, there is a heightened incentive to respond within the time permitted", it was not unreasonable for the Defendant to accept either offer on that basis. That is particularly so when it is remembered that there was some uncertainty as to the effect of the Offer of Compromise and the Calderbank offer in view of the Plaintiff's solicitors' letter conveying them. Although, theoretically, the Defendant could have sought more time for clarification in that regard, it is realistically improbable that it could have done so prior to the hearing before the Referee. Even if the hearing before the Referee had been adjourned by agreement to enable clarification of the Plaintiff's offers, costs of the hearing before the Referee would no doubt have been incurred. There is no evidence that the Plaintiff suggested that the hearing be adjourned in any event.
21. These matters provide support for not awarding indemnity costs in reliance upon the Offer of Compromise and for finding that the Defendant's rejection of the offer was not unreasonable. The time allowed the Defendant to consider the offer was short relative to the stage of the proceedings at which the offer was received. The offers, viewed at the time they were made, as they must be, involved a significant extent of compromise.
22. With respect to the Defendant's prospects of success, assessed as at the date of the offers is concerned, the lay and expert evidence which each party had by that time file entitled each party to consider, within the context of the uncertainty which surrounds all litigation, and particularly surrounds building disputes involving multiple issues, claims and cross-claims, the Defendant was entitled to regard its prospects of success as being reasonable.
23. As submitted by the Defendant, and recorded earlier, although in themselves the Plaintiff's offers were expressed with sufficient clarity, the uncertainty arising from the Plaintiff's solicitors' letter left the Defendant with room for uncertainty as to the basis on which the Plaintiff was effectively offering to settle the proceedings. The offer clearly foreshadowed an application for indemnity costs in the event that the Defendant rejected it.
24. For those reasons, the Court is not persuaded the discretion to award indemnity costs should be enlivened.
25. The Plaintiff sought, further or in the alternative, that if the relief sought by it primarily and in the first alternative were not granted, it be awarded 90% of its costs on the ordinary basis. Having reserved its decision and had the benefit of considering the helpful written submissions of Counsel for both parties, the Court afforded the parties the opportunity to make further submissions with respect to possible outcomes other than those expressly sought by them to which their respective submissions were directed. Neither party made any submissions in response to that opportunity.
26. The Court is persuaded that, in the circumstances, the appropriate order is that the Defendant pay 85% of the Plaintiff's costs as agreed or assessed on the ordinary basis. The reasons for doing so have, at least inferentially, been recorded earlier. The Court does not understand that, in order to make a proportional costs order, if it be possible, there needs to be a minute dissection of the Referee's reasons with respect to the success or failure of the parties on particular issues. The Court has earlier set out from the submissions of the parties what emerges in that regard in percentage and monetary terms. The Court has also recorded that, as is not seriously in doubt, the monetary outcome of a particular issue is not necessarily indicative of its complexity, or the preparation and hearing time which it involved.
27. As is not in doubt, albeit far less than it sought, the Plaintiff was successful overall on a practical basis. Having regard to the extent to which the Plaintiff was unsuccessful, both in terms of the percentage of its claim and the monetary value of its failures, and allowing for the Defendant's greater percentage and monetary failures on its Cross-Claim, it would be contrary to fairness, to decline to reduce the Plaintiff's entitlements to an order for costs in reliance upon those matters.
28. Empirical justification for discounting the Plaintiff's costs by 15% is not readily demonstrable. The Court's decision involves a liberal exercise of discretion. The Court's order reflects the ultimate success of the Plaintiff as against the Defendant in the proceedings, and, for the reasons recorded above, is considered to be the most appropriate order to meet the justice of the case.

Orders

1. The Court orders that: 1. The Defendant pay 85% of the Plaintiff's costs as agreed or assessed on the ordinary basis.

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: 20 October 2023