New South Wales Supreme Court CITATION : Scripture Union v Prime Industrial Pty Limited [2006] NSWSC 38 HEARING DATE(S) : 03/02/2006 JURISDICTION : Equity Division JUDGMENT OF : McDougall J EX TEMPORE JUDGMENT DATE : 02/03/2006 DECISION : See para 44. CATCHWORDS : COSTS - where two or more unsuccessful defendants - whether sufficient segregation of defences to justify departure from general rule as to costs - whether burden of costs should be apportioned betweeen defendants on the basis of referee's findings of proportionate contribution - where third defendant made "Calderbank" offer which required agreement by plaintiff and by first and second defendants - analogous to an offer of compromise - whether third defendant should be indemnified from date of offer. - COSTS - indemnity costs - where plaintiff makes "Calderbank" offer - no question of principle. Bellgrove v Eldridge (1954) 90 CLR 613 CASES CITED : Jones v Bradley (No 2) [2003] NSWCA 258 Rushcutters Bay Smash Repairs Pty Limited v H McKenna Netmakers Pty Limited [2003] NSWSC 670 Thiess Watkins White Constructions Ltd (in liq) v Witan Nominees (1985) Pty Limited [1992] 2 Qd R 452 PARTIES : Scripture Union Plaintiff Prime Industrial Pty Ltd Defendant FILE NUMBER(S) : SC 55035/00 Mr M Ashurst Plaintiff COUNSEL : Mr J S Whyte 1st and 2nd Defendants Mr I G B Roberts 3rd Defendant Church & Grace Plaintiff SOLICITORS : Colin Biggers & Paisley 1st & 2nd Defendants Ebsworth & Ebsworth 3rd Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION McDOUGALL J FRIDAY 2 FEBRUARY 2006 (Revised 7 February 2006) 55035/00 SCRIPTURE UNION v PRIME INDUSTRIAL PTY LIMITED & ORS (No 4) JUDGMENT - COSTS 1 HIS HONOUR: The nature of the issues in these proceedings, both before the referee and before me, is described in my reasons for judgment given on 27 July 2005 (my first judgment): Scripture Union v Prime Industrial [2005] NSWSC 736. In my first judgment, I decided that, with the exception of two matters, the referee's report should in substance be adopted. The first matter related to the basis on which the referee had assessed the plaintiff's damages, which I thought to be inconsistent with the decision in Bellgrove v Eldridge (1954) 90 CLR 613. The second matter, related to the first, concerned an aspect of the quantification of damages that on the referee's approach was irrelevant but on what I thought was the correct approach (governed by Bellgrove v Eldridge) was relevant. 2 The matter came back before me on 7 October 2005 for the making of orders. Because the parties were not able to agree on the orders to be made in respect of the second matter to which I have referred, it was necessary to send the matter back to the referee and I so ordered (my second judgment). 3 The referee reported again in accordance with my second judgment on 1 November 2005. I heard argument relevant to the adoption of that further report and as to the orders that should be made in consequence on 9 December 2005. On that date I gave judgment and made orders in effect adopting the referee's report save in the respects referred to in my first judgment but taking into account the conclusions expressed by him in his second report (my third judgment). 4 The parties were unable, on 9 December 2005, to agree on the costs orders that should be made. Accordingly, pursuant to leave then given by me each party (treating, as the referee did and as I did in my first judgment, the first and second defendants as one) filed a notice of motion seeking particular costs orders. 5 The plaintiff sought orders that the defendants pay its costs on the party and party basis up until 19 December 2004; that the first and second defendants pay its costs thereafter on the indemnity basis; and that the third defendant pay its costs thereafter on the party and party basis. 6 The first and second defendants sought orders that they (as one entity) and the third defendant (as a separate entity) each pay 50 per cent of the plaintiff's costs (by implication, on the party and party basis) and that the third defendant pay their costs of their cross-claims against it. 7 The third defendant sought orders that it pay 24 per cent of the plaintiff's costs assessed on the party and party basis up until 13 December 2004; that the first and second defendants pay the third defendant's costs of their cross-claims against it; and that the second defendant pay the third defendant's costs of its cross-claim against the second defendant. 8 By amendment made today, the third defendant sought further an order that the first and second defendants indemnify it for all costs incurred or ordered to be paid by it after 20 December 2004. 9 The significance of the dates referred to in the orders sought by the parties derives, as one might expect, from settlement offers that had been made. There was no dispute as to those offers or as to their monetary consequences. On 13 August 2003, the third defendant made a "Calderbank" offer, offering to settle the proceedings on the basis that it pay the plaintiff $130,000 for damages and $70,000 for costs, and on the basis that the claims for contribution between the defendants advanced by their various cross-claims be dismissed. 10 It is not necessary to give detailed consideration to that offer, save to note that, as the third defendant submitted, it was made after the conclave of experts (the referee referred to the conclave on a number of occasions in his first report, including at R145 and R147), and that it indicated a general willingness, or predisposition, on the part of the third defendant to settle. 11 On 13 December 2004 the third defendant made a further "Calderbank" offer. That offer was to settle on the basis that it pay the plaintiff $178,178.50 comprising damages of $137,050 together with interest, and costs on a defined basis. Again, the offer was (understandably) conditional on the various cross-claims for contribution being abandoned. 12 It was not open to the plaintiff to accept the third defendant's offer of 13 December 2004 so as to bring about a concluded compromise. That is because paragraph 3 of the offer, relating to the position as between the defendants, was an integral part of the proposal (the proposal being made to both the plaintiff and the first and second defendants) and settlement on the part of the plaintiff necessarily would require settlement on the part of the first and second defendants. 13 No doubt in recognition of that position, the third defendant on 13 December 2004 wrote a further letter to the plaintiff. That letter referred to the possibility that "the plaintiff may argue that the offer is ineffective because the plaintiff cannot do anything to satisfy the terms of paragraph 3 so that the offer [to the plaintiff] may be accepted by it." The third defendant therefore indicated that it would be "prepared to consider" an offer that the plaintiff in substance compromise the proceedings as between it and third defendant on the basis of payment of the damages amount together with interest to which I have referred, and costs, and indemnify the third defendant against any liability that it might have had to the first and second defendants. 14 The third defendant's offer of 13 December 2004 was open for acceptance up until 17 January 2005, although the time for acceptance was, at the request of the plaintiff, extended. 15 There was some correspondence between the parties which, in effect, sought to clarify aspects of the offer. It is not necessary to refer to that correspondence. It is, however, necessary to refer to a "Calderbank" offer made by the plaintiff on 20 December 2004. The plaintiff offered to settle on the basis that it have judgment against the first and second defendants in the sum of $433,991 plus interest; judgment against the third defendant in the sum offered ($137,050) together with interest; and costs. The offer was expressed to remain open for acceptance until 20 January 2005. 16 Both the third defendant's and the plaintiff's offers were made after the publication of, and reflected the findings in, the first report. It does not appear that either offer was accepted; and no correspondence emanating from the first and second defendants or their legal advisers has been put before me on the applications for costs. 17 The parties agreed on 9 December 2005 that the orders necessary to give effect to my conclusions on the two reports were that there should be judgment for the plaintiff against the first and second defendants in the sum of $608,793.08 and judgment for the plaintiff against the third defendant in the sum of $192,250.44. Each sum included interest to the date of judgment. 18 In the ordinary way, where damages have been quantified in a lump sum, one would enter judgment in favour of the plaintiff against all defendants for the total amount of the damages (including interest) and enter judgment for each defendant against the other for contribution according to their success or failure on their cross-claims. That approach was not followed - or at least completely followed - in the present case. One reason for this relates to the referee's finding as to the nature of the damage sustained by the plaintiff. In substance, the damage sustained resulted from the differential failure of the ground floor slab of the building and consequential structural damage both at the ground floor level and at the first floor level and to the roof. In substance, the referee, concluded that all defendants were liable for the damage relating to the slab and the ground floor but that the third defendant alone was liable for the damage to the first floor and roof. Those conclusions may be seen most clearly in his summary of the nature of the causation case at R 226 and in his consideration of the apportionment case at R 311 and following, noting, in particular, R 314 and R 316. I repeat that the referee, as did I, treated the first and second defendants as one party, and no challenge was raised to this. 19 Thus, on the referee's findings, it would not have been open to enter judgment against the first and second defendants for the entirety of the damage claimed by the plaintiff. That is because, on the referee's findings (which I have adopted) the first and second defendants did not cause any damage insofar as it related to the first floor and roof. 20 The second reason why the judgments were entered in the form that they did was that the referee, as I have indicated, dealt at length, and in my view correctly, with the question of contribution. Although his reasoning was challenged, I adopted it. In substance, what the referee did was to assess the respective contributions of the third defendant on the one hand and the first and second defendants together on the other to the damage (slab and ground floor) for which he found they were jointly liable and assessed the monetary consequence. He then assessed, separately, the damage (first floor and roof) for which he found the third defendant alone was liable. Whilst findings in those terms would have been a basis for giving judgment in the form to which I have referred (for a lump sum in favour of the plaintiff and for contribution between the defendants) the parties very sensibly decided, as an appropriate way of dealing with the conclusions that I had expressed, that the judgments should cut through and should reflect the liability individually of the first and second defendants together on the one hand and the third defendant on the other having regard to the referee's findings. 21 The parties agreed on the appropriate comparison of the values of the success achieved by the plaintiff (as reflected in the orders made on 9 December 2005) and of the offers made on 13 and 20 December 2004. The plaintiff's offer against the first and second defendants ($433,991 plus interest) was quantified, as at 20 December 2004, at $544,141.46. The damages recovered by the plaintiff against the first and second defendants were quantified, including interest up to 13 December 2004, at $572,534 96. Thus, it will be seen, the plaintiff recovered approximately $28,000 more pursuant to the judgment entered in its favour than it would have recovered had the offer made by it been accepted. 22 As between the plaintiff and the third defendant, the comparison shows that the plaintiff's offer ($137,050) and interest amounted to $171,834.41 as at 20 December 2004. That may be compared with the amount actually offered by the third defendant which was, as I have noted, almost $7,000 more - $178,178.50. The value of the damages recovered by the plaintiff, when adjusted back to 13 December 2004, is $180,800.51. 23 In support of its claim for indemnity costs, the plaintiff referred to the fact that it had bettered, and substantially bettered, the Calderbank offer made by it on 20 December 2004. It relied on the decision of the Court of Appeal in Jones v Bradley (No 2) [2003] NSWCA 258 at para [20] to submit that the position should be equated to that which would prevail had it made an offer of compromise under the rules as they then existed. I accept that proposition; and indeed, no submissions against it were put on behalf of the first and second defendants. 24 It is apparent, when one compares the offer made by the plaintiff with that made by the third defendant (ie, the third defendant's second offer, 13 December 2004) that the impediment to settlement was not the third defendant. It is apparent that the third defendant, having offered $178,178.50, would have accepted the plaintiff's offer (as I have said, valued at almost $7,000 less) had it been open to it to do so without the concurrence, and involvement, of the first and second defendants. Thus, I infer that it was the first and second defendants that were the obstacle to settlement. 25 I have mentioned that the third defendant sought leave to amend its notice of motion. At first, the first and second defendants opposed that, submitting that it raised fresh issues. However, after the basis on which the further order was sought was explained (reflecting essentially what I have just said) and after the first and second defendants had had an opportunity to consider their position, they did not press their objection to the amendment. In those circumstances, I do not think that I should treat, at least favourably to the first and second defendants, the relatively late stage at which the amendment was sprung upon them. More importantly I think, I can take into account, adversely to the first and second defendants, their failure to adduce any evidence to rebut the inference to which I have referred. Had they wished to put on evidence to meet the new matter, they could have sought - and in all likelihood would have been granted - an adjournment to enable them to do so. To put it another way, having regard to the procedural history and to the opportunity available to the first and second defendants to put on evidence should they wish to do so, I think that I can rely upon their failure to do so as supporting my decision to draw the inference to which I have referred. 26 I therefore conclude that the costs to which the plaintiff is entitled as against the first and second defendants should be payable on the party and party basis up until 19 December 2004 and on the indemnity basis thereafter. No submission was put that the period should commence on the date of expiry rather than of making the offer. The analogy with an offer of compromise (see para [23] above) in any event supports the earlier date. 27 The plaintiff did not seek indemnity costs against the third defendant; nor, having regard to the figures to which I have referred, is there any real basis on which it could have done so. The plaintiff did, however, seek an order that the third defendant pay its costs of the proceedings on the party and party basis. As between the plaintiff and the third defendant, the issue was whether those costs should be limited in some way; and exactly the same issue arose as between the plaintiff and the first and second defendants. 28 In my view, where a plaintiff succeeds as against two or more defendants, the ordinary rule that costs follow the event means that the plaintiff should have its costs as against all defendants. That is because the plaintiff, as the successful party, is prima facie entitled to its costs of the action (that being the effect of the application of the general principle) and should not be the party to lose out if one of the unsuccessful defendants cannot or will not meet its share of the costs burden. The cases were considered by Gzell J in Rushcutters Bay Smash Repairs Pty Limited v H McKenna Netmakers Pty Limited [2003] NSWSC 670. His Honour accepted that the general principle was as I have stated it. 29 The cases do recognise a situation where the general rule may not apply. That is where one defendant conducts a separate and distinct defence which leads to the incurring of costs that should not be attributed to the joint conduct of the defendants in the defence of the action: Thiess Watkins White Constructions Ltd (in liq) v Witan Nominees (1985) Pty Limited [1992] 2 Qd R 452. Gzell J referred with approval to that proposition in Rushcutters Bay Smash Repairs at para [14]. Again, I agree. 30 The question has been somewhat bedevilled because of the unfortunate use, in some of the cases, of the expression "partners in crime" to refer to defendants who have been found to be liable to the plaintiff. At para [16] Gzell J pointed out that the phrase "has a metaphorical meaning that should apply to most unsuccessful co-defendants" and that the only real requirement was "that the plaintiff has been successful against them". I agree. I do not think that it is appropriate to consider the application of, or departure from, the general principle by analysing the metaphor; rather, I think, the appropriate course is to analyse the principle and its basis. I say that because it was submitted that the first and second and third defendants were not "partners in crime". Whilst that may be literally true, it overlooks the basis to which the metaphor relates: namely, that they have both been sued and have both been found liable. 31 In my view, there has been nothing shown to take the case outside the general rule recognised by the cases (including the decision of Gzell J in Rushcutters Bay Smash Repairs). 32 The first and second defendants referred in submissions to the distinct nature of the claims brought by the plaintiffs, and to the varying bases on which the referee found that the defendants were liable to the plaintiff. I accept (as indeed is obvious) that the basis of the claims was in each case different. However, the loss sustained by the plaintiff was the cost of repair of the defects in its building caused by the various acts and defaults of the defendants that the referee found proved. One group of those causes related to be partial failure of the ground floor slab. The referee said that this was due both to inadequate design of the slab and to inadequate preparation of the material beneath it. The other cause related to the inadequate design of the first floor and roof. However, the relative contributions of the parties was adjusted by the referee in the way in which he dealt with the question of apportionment. I considered this in my first judgment at paras [107] to [119]. I see no reason to depart from what I there said. I see nothing in that analysis (or in the analysis of the referee to which I refer in those and the following paragraphs) to provide any support for the proposition that the nature of the cases, or the defences, is so different that the ordinary rule as to costs, where a plaintiff succeeds against two or more defendants, should not apply. 33 I therefore consider that the plaintiff is entitled to its costs against all defendants and that the question of their relative responsibility for the plaintiff's costs is a matter to be dealt with as between them. However, as I have said, to the extent that the first and second defendants are liable on the indemnity basis, that is not a liability than should be visited upon, or shared by, the third defendant. 34 Neither the notices of motion nor the submissions first put for the defendants dealt with the situation that I have just analysed. That is because each of them sought an order that they pay only a specified proportion of the plaintiff's costs. However, over the lunch adjournment, each accepted that as a fallback or alternative position, I should, if I were minded to order them to pay the plaintiff's costs, deal with the situation between them by way of some sort of apportionment. In case I have not made it clear, I note that no defendant sought thereby to withdraw from the primary position advanced by it through its notice of motion. 35 That therefore leads to consideration of the way in which the burden of the plaintiff's costs should be adjusted as between the defendants and what should happen to the costs of the cross-claims. 36 On the first point, the third defendant submitted that the burden of the plaintiff's costs should be borne in proportions that reflect the referee's findings of their several contributions to the total damages sustained by the plaintiff. On those findings, which as I have said I have adopted, the first and second defendants (treated as one entity) are liable for 76 per cent of the damages and the third defendant for 24 per cent. (However, the third defendant submitted that its contribution towards the total costs burden should not apply to costs incurred after 20 December 2004.) 37 The first and second defendants do not dispute that the percentage basis might be an appropriate manner of allocation of the costs burden. However, they submitted as an alternative that it might be appropriate to order each defendant to bear one third of the cost burden. I do not think that, having regard to the history of the matter, such a departure from the conventional basis on which the matter was argued before me should be permitted. Indeed, to treat the first and second defendants as separate parties, when hitherto both the referee and the Court have for all real purposes treated them as one, seems to me to be quite unjustifiable. 38 It is very difficult, in framing any order for the apportionment of costs, to do absolute and precise justice down to the last dollar. That is so whether costs otherwise payable as following the event are diminished by reason of some delinquency on the part of the party otherwise entitled, or (in rare cases) to reflect relative degrees of success and failure overall. It is, I think, equally so in this case. As I have said, if orders were made in the usual way there would be a series of judgments on the action and the cross-claims and a series of costs orders. It would be left to some unfortunate assessor to seek to determine the working out of those orders (at least on the cross-claims) if, (as the history of this case suggests might be likely) the parties affected were unable to agree. Having regard to the substantial amount of time taken to date in these proceedings (including before the referee) and to what is, no doubt a very substantial burden of costs incurred, I do not think that I should add yet further to the burden. 39 In all the circumstances, I think, it is appropriate to treat the costs payable by the defendants between them to the plaintiff as analogous to the damages payable by them to the plaintiff. Thus, just as damages were apportioned on the basis of the referee's findings of proportionate contribution to the outcome, I think it is appropriate that the burden of costs should be apportioned in like manner. To do this seems to me to achieve substantial justice between the defendants, and to reflect their relative degrees of contribution to the loss sustained by the plaintiff. 40 I therefore conclude that prima facie, of the costs payable by the defendants to the plaintiff on the party and party basis, the burden as between the defendants should be borne as to 76 per cent by the first and second defendants together and as to 24 per cent by the third defendant. 41 That then raises for consideration the effect of the order sought by the third defendant against the second defendant in relation to costs after 20 December 2004. As I have said, I infer that it was the first and second defendant's attitude that led to the failure of the attempts then made to settle the proceedings. Thus, I think, the first and second defendants should have no contribution from the third defendant for any costs for which the defendants between them are liable from 20 December 2004. Further, I think, the third defendant (having done all that it could to procure a settlement, and having provoked the plaintiff to make an offer that, as I have found, was more favourable to the first and second defendants than the ultimate outcome), should not be left exposed for the costs that it was forced to incur from 20 December 2004 simply because the first and second defendants failed to accept offers that, with the benefit of hindsight, must be seen to have been reasonable. I therefore conclude that the third defendant is entitled to be indemnified by the first and second defendants for the costs incurred and payable by it from 20 December 2004. The order sought did not date back to 13 December 2005, when the third defendant's offer was made; so although I rely on that offer (and its non-acceptance) as part of the circumstances entitling the third defendant to this relief, I will do no more than grant it relief in the terms sought. 42 The final question to be considered is that of costs on the cross-claims for contribution or indemnity. Again, in the ordinary way, those costs would follow the event. However, I think, having regard both to the way that the proceedings were dealt with before me (resulting in the entry of judgments in the somewhat unusual form to which I have referred) and to the fact that each defendant, as cross-claimants, has recovered to some extent, and taking into account that in reality the costs separately contributable to the various cross-claims are not likely to be substantial I think that the appropriate order is to make no order as to the costs of those cross-claims. I have not overlooked that each of the first and second defendants cross-claimed separately against the third defendant, whereas the third defendant cross-claimed only against the second defendant. However, in circumstances where as I have said the first and second defendants have, at least for a long time in this litigation, been treated as one party, I do not think that this consideration of itself is a basis for making any different order. 43 The conclusions that I have indicated do not closely reflect the way in which any defendant puts its case, in the sense that the various conclusions that I have outlined stitch together a number of separate lines of argument and reasoning. The plaintiff, of course, has succeeded entirely, in the sense that it will obtain an order that the defendants pay its costs and that, so far as the first and second defendants are concerned, those costs will be assessed on the party and party basis up to and including 19 December 2004 and on the indemnity basis thereafter. However, the precise working out, or formulation, of the orders as between the defendants is something that has been addressed only with a degree of haste. I have two choices. One is to make orders in the form of a document handed up by the third defendant; and the other is to stand the proceedings over, or down, to give the parties an opportunity to reflect on what I have said and to bring in orders to give effect to these reasons. Having regard to the way in which the issues have emerged, and being desirous (if possible) of bringing some finality to these proceedings, I think that the first course is the one that I should adopt, but that I should reserve leave to the defendants to vary what I propose to order in relation to the situation as between them. Thus, if the draft orders handed up by the third defendant are seen, on reflection, not to give effect to what I have said, then the defendants can argue that point, but do not need to involve the plaintiff in doing so. 44 I therefore make the following orders: 1. Order the defendants to pay the plaintiff's costs of the proceedings. 2. Order that the plaintiff's costs as against the first and second defendants be assessed on the party and party basis up to and including 19 December 2004 and on the indemnity basis thereafter. 3. Order that the plaintiff's costs as against the third defendant be assessed on the party and party basis. 4. Declare that, as between the defendants: (a) the first and second defendants are jointly and severally liable for: (i) 76 per cent of the plaintiff's recoverable costs up to and including 19 December 2004. (ii) 100 per cent of the plaintiff's recoverable costs from 20 December 2004. (iii) 100 per cent of the third defendant's recoverable costs from 20 December 2004. (b) the third defendant is liable for; (i) 24 per cent of the plaintiff's recoverable costs up to and including 19 December 2004. (ii) none of the plaintiff's recoverable costs incurred from 20 December 2004. 5. Order the first and second defendants to pay the third defendant's costs in accordance with order 4(a)(iii). 6. Make no order otherwise as to the costs of the cross-claims for contribution or indemnity. 7. Reserve liberty to the first, second and third defendants to move to vary orders 4, 5 or 6 on 14 days' notice to each other and to the 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.