Alstom Australia Ltd v NAP Acoustics Pty Ltd & Anor [2005] NSWSC 1010

New South Wales Supreme Court

CITATION : Alstom Australia Ltd v NAP Acoustics Pty Ltd & Anor [2005] NSWSC 1010

HEARING DATE(S) : 26 September 2005

JUDGMENT DATE : 26 September 2005

Equity Division JURISDICTION : Technology & Construction List

JUDGMENT OF : Palmer J

DECISION : Leave to discontinue granted; Plaintiff to pay Second Defendant's costs.

CATCHWORDS : COSTS - LEAVE TO DISCONTINUE - Plaintiff seeks leave to discontinue against Second Defendant - Second Defendant joined in consequence of defence of First Defendant - First Defendant in liquidation - whether leave to discontinue should be granted on terms that the Plaintiff pay the Second Defendant's costs.

Alstom Australia Ltd - Plaintiff PARTIES : NAP Acoustics Pty Ltd (t/as NAP Silentflo) - First Defendant Process Machinery Australia Pty Ltd (t/as DCL Engineering) - Second Defendant

FILE NUMBER(S) : SC 55056/02

S.T. White SC, R. Foreman - Plaintiff COUNSEL : R.N. Gye - Second Defendant

Ebsworth & Ebsworth - Plaintiff SOLICITORS : A.R. Conolly & Co - Second Defendant

LOWER COURT JURISDICTION :

Ex tempore

1 The Plaintiff seeks leave to discontinue these proceedings against the Second Defendant. The Second Defendant does not oppose discontinuance. However, an issue between the parties has arisen as to what is the proper order as to costs. 2 The proceedings arose following the retainer of the Plaintiff to perform certain works in relation to the construction of the Eastern Distributor. Those works included the design and supply and installation of sound attenuators for the exhaust outlets by which fumes from motor vehicles were to be removed from the tunnel. The Plaintiff subcontracted with the First Defendant, NAP Acoustics, and the Second Defendant, Process Machinery, for the performance of separate parts of the works. NAP Acoustics was to design and supply discharge silencers which form part of the sound attenuators. Process Machinery was to design and supply supports for the discharge silencers. After about 400 hours of use, the panels of the discharge silencers cracked and had to be replaced. 3 Initially, the Plaintiff commenced proceedings against the First Defendant alone. Prior to the commencement of the proceedings, there had been, as one would expect, considerable discussion between the three parties as to the cause of the failure of the panels. The Plaintiff had commissioned an expert report which attributed the fault to the First Defendant. The First Defendant had, however, made it clear that it regarded the Second Defendant as to blame for the failure. It had said so in discussions with the Plaintiff prior to the commencement of proceedings and it had procured its own expert's report which laid the blame at the feet of the Second Defendant. 4 The Plaintiff, however, commenced proceedings against the First Defendant alone. In its defence, the First Defendant pleaded that the failure was not due to its own fault but was due to the fault of another party. Although it did not, in its pleading, identify the Second Defendant as that other party, the Plaintiff was in no doubt that the party referred to was the Second Defendant, both by reason of the discussions prior to the commencement of proceedings and also by the fact that the First Defendant had given to the Plaintiff its own expert report laying the blame at the feet of the Second Defendant. 5 Having seen that the First Defendant's Defence proposed to rely upon an attribution of blame to the Second Defendant, the Plaintiff had to consider its own position in case the First Defendant succeeded in that defence. It decided therefore that it would join the Second Defendant to the proceedings. While it would focus its attack on the First Defendant, if the First Defendant's defence succeeded it would be able to rely upon the evidence tendered by the First Defendant against the Second Defendant to establish that the Second Defendant was liable to the Plaintiff. It would be able to take advantage of Bullock or Sanderson orders to alleviate an adverse costs order in favour of the First Defendant. 6 That course of action was, no doubt, reasonable and no one has suggested otherwise. Proceeding in that way would have meant that all issues in dispute between all three parties concerned would have been heard at once in the same proceedings and orders could have been made finally resolving all issues as between all parties. 7 However, a complication ensued because the First Defendant went into liquidation. Apparently, it did not have available satisfactory insurance in respect of whatever liabilities it may have incurred to the Plaintiff. The Plaintiff was therefore faced with the situation in which the First Defendant, which it believed to be responsible for the loss, had ceased to be of any substance so that it was no longer worthwhile to proceed with the case against it. Accordingly, the Plaintiff discontinued against the First Defendant and the liquidator consented to that course of action with each party bearing its own costs. 8 The Plaintiff has now decided that it does not want to proceed against the Second Defendant. It is to be assumed, reasonably I think, that the Plaintiff does not want to continue because it believes that it cannot succeed against the Second Defendant. As I have said, the Plaintiff's expert evidence was to the effect that it was the First Defendant, not the Second Defendant, which was responsible for the failure of the panels. 9 In those circumstances one can see that it is quite reasonable for the Plaintiff to seek to discontinue against the Second Defendant. One can see also that the liquidation of the First Defendant has left the Plaintiff in the situation where it has had to bear not only the loss occasioned by the failure of the panels, but the costs thrown away in the discontinued action against the First Defendant. Now, it faces a costs application on the part of the Second Defendant for the Second Defendant's costs of these proceedings. 10 The proceedings and the issues underlying them were, as both counsel have said, exceedingly complex. There were difficult decisions to be made by the legal representatives on all sides but, I imagine, more critically so for the Plaintiff's legal representatives. This was because the Plaintiff was faced with the allegation by the First Defendant that it was not responsible but the Second Defendant was responsible, whereas the Second Defendant would be saying exactly the opposite. 11 I do not think that there is any criticism that can be levelled against the Plaintiff or its advisors for deciding to join the Second Defendant in the proceedings. It was eminently reasonable that the Second Defendant be joined. It is now, no doubt, the result of a reasonable appraisal of the strength of the evidence against the Second Defendant that the Plaintiff has decided that it does not wish to pursue the Second Defendant. That also, no doubt, is a reasonable decision. However, simply because the Plaintiff has made reasonable decisions on its side does not answer the question which is now to be decided. 12 The Second Defendant has been brought into proceedings by a conscious decision of the Plaintiff, taken essentially as a fall back, or precautionary, measure. The decision to join the Second Defendant was not, apparently, taken because the Plaintiff believed that the Second Defendant was in any real sense responsible but, as I have said, simply because there was a possibility to be guarded against. 13 The exercise of discretion as to costs in this case is quite difficult because one can see that all parties concerned have acted reasonably in the conduct of proceedings. Nevertheless, at the end of the day I think that the exercise of discretion should be against visiting the cost consequences of the Second Defendant's joinder on the Second Defendant itself. 14 The Second Defendant was brought into the proceedings at the instigation of the First Defendant which is now in no condition to answer anybody's costs orders. However, ultimately it was the Plaintiff which decided to take the litigious risk of joining as a defendant a party which it did not assert to be primarily liable and which, it has now accepted, is not liable, at least according to the evidence which it has presently available. I think that in those circumstances, unfortunate though it is for the Plaintiff, the Plaintiff must bear the cost consequences of that decision. 15 Accordingly, I would grant leave to the Plaintiff to discontinue the proceedings against the Second Defendant on terms that the Plaintiff pay the Second Defendant's costs of the proceedings. 16 I come now to deal with the question as to whether the costs which the Plaintiff must pay to the Second Defendant should be ordered on the indemnity basis as the Second Defendant seeks. 17 The Second Defendant relies upon an offer of compromise served on the Plaintiff on 24 September 2004. That offer was that there be a verdict for the Second Defendant and each party bear its own costs. I need not dwell on the somewhat different provisions relating to offers of settlement and compromises under the former Supreme Court Rules and the present Uniform Civil Procedure Rules. The question always involves a balance of considerations and the exercise of discretion. 18 I think that in this very difficult situation in which the Plaintiff was placed, the Plaintiff was justified in regarding the offer of compromise as not as favourable to it as an order which it was at liberty to seek, that is, that it have leave to discontinue, even at the price of a costs order against it. The difference between an adverse judgment and leave to discontinue is, of course, too familiar to require restatement. 19 In my view, the order which the Plaintiff now seeks and which will now be made against it – that is, that there be leave to discontinue with costs – is not less favourable to the Plaintiff than the Second Defendant's offer of 24 September 2004. In those circumstances, I do not think that this is a case which warrants the exercise of discretion in favour of an indemnity costs order against the Plaintiff. 20 The orders of the Court are, therefore, that the Plaintiff is to have leave to discontinue against the Second Defendant and the Plaintiff is to pay the Second Defendant's costs on a party/party basis. 21 I order that the Plaintiff pay the Second Defendant's costs as assessed before being entitled to commence any fresh proceedings against the Second Defendant for the same cause of action. – oOo –