New South Wales Supreme Court CITATION : Stolfa v Owners Strata Plan 4366 & ors [2009] NSWSC 844 HEARING DATE(S) : 27 July 2009 JURISDICTION : Equity Division Expedition List JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 27 July 2009 DECISION : Plaintiff to pay defendants' costs on indemnity basis from date of Calderbank offer CATCHWORDS : COSTS – where plaintiff failed on two issues but succeeded on a third – where no dispute as to third issue except as to extent of damage caused by defendants – where plaintiff fails to better Calderbank offer – held: plaintiff to pay defendants' costs on an indemnity basis, except for cost of expert's report relevant to issue to be decided on subsequent inquiry as to damages CATEGORY : Consequential orders CASES CITED : Stolfa v Owners Strata Plan 4366 & ors [2009] NSWSC 589 Veronica & Raffaele Stolfa (plaintiffs) PARTIES : Owners Strata Plan 4366 (first defendant) John Hempton & Joanna Kalowski (second defendants) Stephen Hempton & Tonia Tschanz (third defendants) FILE NUMBER(S) : SC 4087/07 COUNSEL : Mr M A Ashhurst SC (plaintiffs) Mr P W J Gray SC (second & third defendants) SOLICITORS : W G McNally Jones Staff (plaintiffs) David Le Page (defendants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRERETON J Monday 27 July 2009 4087/07 Veronica Stolfa & Anor v The Owners Strata Plan 4366 & 4 Ors JUDGMENT (ex tempore) 1 HIS HONOUR: Three issues arise for present consideration consequent upon the judgment given on 26 June 2009 [Stolfa v Owners Strata Plan 4366 & ors [2009] NSWSC 589]. 2 The first is the question of costs of the proceedings to date. The plaintiffs failed on what can conveniently be called "the void issue" and "the lot 3 issue". However, they succeeded in obtaining declarations to the effect that the second and third defendants were liable to compensate them for the reasonable costs of repairing damage occasioned to Unit 2 by the performance of building works by or on behalf of those defendants in and about Units 1 and 3, in respect of which there is to be an inquiry as to damages. 3 The defendants submit that, insofar as the plaintiffs succeeded on "the damages/nuisance issue", it was never in dispute in the proceedings. As I recorded in the principal judgment, although it has never been an issue that the works carried out by the Hemptons and by Stephen Hempton have caused damage to Unit 2, and that those defendants are liable to make good that damage, there was and remains controversy as to the extent of the damage so caused. While the defendants acknowledged that the damage so caused would have to be fixed, and made an initial offer of $5,000 to constitute a fund towards the cost of those repairs, there appears to be a considerable gulf between what the Stolfas asserted was the relevant damage and what the defendants were prepared to acknowledge. The defendants did contest issues of causation and quantum. Those issues remain unresolved, and will only be resolved on the inquiry as to damages, although some evidence relevant to them in the hearing. 4 Not before the Court at the time of the substantive hearing – because the correspondence was without prejudice as to costs – was a letter of 21 December 2007, from the defendants' solicitor Mr Le Page to the plaintiffs' solicitor, covering a letter of 19 December 2007 from the defendants to their solicitor which they asked to be conveyed to the plaintiffs. In the 19 December letter, the defendants wrote: B. Damage to Stolfas' Property As soon as this issue was raised at a meeting of the body corporate around May 2007, John and I and Steven Hempton agreed that we, the owners of the other two lots, would pay to repair any damage, so the letter of offer is putting something to us to which we have long ago said yes. Mr Le Page's letter of 21 December 2007 recorded: (b) Prior to the commencement of these proceedings, Messrs Stephen and John Hempton agreed to repair damage caused to your clients' Lot by building works undertaken by Stephen Hempton. This is not a matter in dispute and was not a matter in dispute prior to the commencement of these proceedings. ... We repeat that prior to the commencement of these proceedings Messrs Stephen and John Hempton agreed to repair damage caused to your clients' Lot by building works undertaken by Stephen Hempton, whether on common property, in Lot 1 or in Lot 3. This is not a matter in dispute and was not a matter in dispute prior to the commencement of these proceedings. At the general meeting held on 2 August 2007, John Hempton and Stephen Hempton acknowledged that damage to lot 2 has been caused by their building works. John Hempton offered to pay an initial sum of $5,000 into a fund to finance repairs. 5 Although it is true that the plaintiffs have obtained a measure of success concerning the "nuisance/damages issue", they have not yet established the issues of causation and quantification upon which any award of damages will depend. They will do so, if at all, on the inquiry as to damages, and, depending on its outcome it may well be that they may be entitled to a costs order in respect of the inquiry as to damages. However, so far they have obtained no more than the defendants repeatedly indicated that they were prepared to concede, namely liability for damages caused by their works. 6 Mr Ashhurst has submitted that each party should bear its own costs, on the basis that at that time the defendants significantly contributed to or caused the litigation. In my view, all parties contributed to the litigation. Insofar as it might be said that the minutes of the Owners Corporation were a cause of it, that is a responsibility which all parties must share. The more important consideration is that the plaintiffs brought the defendants to court and, with the limited exception to which I have referred, failed and the defendants are significantly out of pocket as a result. I do not think there is anything approaching the kind of discretionary consideration that would justify depriving substantially successful defendants of their costs in those circumstances. 7 However, as I have recorded, some of the evidence in the hearing took back some part of Mr Branch's report: part of his oral evidence and part of the view were relevant to the issues of causation and quantification. In particular, Mr Branch was a parties' single expert, and no part of his evidence was relevant to the issues on which the defendant succeeded. Part of the view was concerned with the damage to Unit 2; although it is necessary to adopt a fairly broad axe approach to these matters, it seems to me about one-third of the view might reasonably be attributable to "the damage/nuisance" issue. It is conceivable that on the inquiry as to damages it might emerge that it is appropriate that the Stolfas should be entitled to costs of those aspects of the proceedings, and I will exclude them from the costs that the plaintiffs must pay at this stage; they can be revisited on the outcome of the inquiry. 8 The defendants submit that their costs should be assessed on an indemnity basis, either from 18 January 2008 (being 28 days after a "without prejudice save as to costs" offer made on 21 December 2007) or from 3 July 2008 (by which date a "without prejudice save as to costs" offer made on 26 June 2008 had been rejected). As to the December 2007 offer, while in the event it may if accepted have provided for the plaintiffs a more satisfactory result than the outcome of the proceedings, it involved no element of the compromise on the defendants' part, effectively requiring total capitulation of the plaintiffs. Although this is not necessarily fatal in circumstances where the offer was not made by formal offer, the absence of any element of compromise is a significant factor. I am not prepared to make an indemnity costs order based on that offer. 9 The offer of 26 June 2008 is in a different category. As well as offering to attend a mediation in the near future and negotiate further, it included terms, first, that the second defendant pay the plaintiffs $12,500 (being the amount which it was understood, I think correctly, that the plaintiffs claimed they had been required to contribute to the costs of works in the void area in excess of their proper responsibility); secondly, that a quantity surveyor be appointed to determine the costs of the repairs identified as necessary by Mr Branch (to which I shall return); thirdly, that Stephen Hempton would not construct a masonry wall separating his proposed second bedroom from the proposed living area; fourthly, that Stephen Hempton would pay the Owners Corporation compensation for the benefit he was deriving from his use of the common property, to the extent it exceeded the benefit derived by the plaintiffs from their balcony; and fifthly, that each party bear its own costs. The first, third and fourth elements would have conferred significant benefits directly or indirectly on the plaintiffs which they ultimately did not gain in the proceedings: indeed, in large measure they met the plaintiffs' real concerns agitated in the proceedings. While it is true that the fifth element could not have been included in a formal offer of compromise, it was favourable to the plaintiffs when contrasted with the position that they will obtain so far as costs are concerned, namely that there will be a costs order against them. Mr Ashhurst has argued that the second element effectively sought to substitute a quantity surveyor's determination for the opinions of Mr Branch as to causation of the damage to lot 2. I am unconvinced that, properly construed in its context, it really does so, but even if it does, it does not bear on the present issue because the questions of causation and quantification remain to be resolved, and will fall for resolution in the inquiry as to damages. 10 Had the plaintiffs accepted that offer, they would be no worse off in respect of the second element, and plainly better off in all other respects, than has eventuated as a result of the proceedings. It seems to me that, having regard to the ultimate outcome of the proceedings and the terms of the offer of 26 June 2008, its rejection must be regarded as unreasonable in the relevant sense. Accordingly, the costs to which the defendants are otherwise entitled should be assessed on an indemnity basis from 3 July 2008. 11 The second issue is that the third defendant wishes to have an inquiry as to damages in respect of the plaintiffs' undertaking as to damages given in conjunction with the interlocutory relief that they obtained. He has tendered some evidence of damage. The plaintiffs oppose an inquiry, or at least desire an opportunity to consider opposing an inquiry, and are not today in a position to argue the issue. Notice not having been give, that is not unreasonable. However, in order to endeavour to minimise any further costs I will make directions with a view to having both the argument as to whether there should be an inquiry, and the inquiry itself if possible, resolved when the matter is next heard by the Court. 12 The third issue is the inquiry as to the plaintiffs' damages in respect of the nuisance/damages issue. Consistent with the approach that has been adopted so far in respect of the use of a single expert in these proceedings, the appropriate course is to provide for a further inspection by Mr Branch following completion of the Unit 3 works, followed by a supplementary report addressing the outcome of that inspection and clarifying matters which remain less than clear as a result of his original report and oral evidence, and provision for the plaintiffs then to serve quotes for the scope of rectification works required. Whether any further evidence is then required, can then be addressed in the light of his report and the parties' attitude to the quotes. Unfortunately, given the time frame for the completion of the lot 3 works, it appears that none of this can realistically be resolved until next year. Having regard, however, to the circumstance that on Mr Branch's evidence so far there is some if slight evidence that the damage to the plaintiff's Unit might be in the order of $50,000, and that on the evidence tendered so far by the defendants, their damages on the plaintiffs' undertaking as to damages might be in the order of $56,000, even if the issue of the damages pursuant to the undertaking as to damages were determined more expeditiously, there is a very large prospect that any order made in respect of it would be stayed pending the outcome of the inquiry as to the plaintiffs' damages. In those circumstances I think it best to leave all matters to be resolved together, hopefully at less cost than otherwise would be involved. 13 Accordingly, my orders are: (1) Save insofar as any special costs order otherwise provides, order that the plaintiffs pay the defendants' costs of the proceedings to date, save and except for the costs of and incidental to Mr Branch's report and oral evidence and one-third of the costs of the view, which costs are reserved for further consideration in conjunction with the inquiry as to damages. (2) Order that the costs payable under Order (1) be assessed on the indemnity basis from 3 July 2008 and otherwise on the party-party basis. (3) Upon the undertaking of the third defendant's solicitor to pay the appropriate filing fees, grant leave to the third defendant to file a Notice of Motion claiming an inquiry as to damages pursuant to the plaintiffs' undertaking as to damages, such motion to be returnable on the date to which I adjourn these proceedings for directions. (4) Direct that the plaintiffs serve any evidence in respect of the application for an inquiry as to damages pursuant to their undertaking as to damages by 1 February 2010. (5) Direct that upon practical completion of the works to Unit 3, the third defendant notify the plaintiffs' solicitor that the works have been practically completed. (6) Direct that within fourteen days of notification of practical completion, the parties instruct Mr Branch to provide a supplementary report setting out: a. which of the defects identified in his report of 28 February 2008 were caused by the building works undertaken by the second defendants and third defendant respectively; b. what if any further defects identified in and about Unit 2 since 28 February 2008 have been caused by the building works undertaken by the second defendants and the third defendant respectively; and c. a recommended Scope of Works for rectification of the defects so identified. 7. Direct that within 21 days after Mr Branch's supplementary report is given to the parties, the plaintiffs serve three itemised quotations for the performance of rectification works in accordance with Mr Branch's recommended Scope of Works. 8. Reserve liberty to all parties to apply by arrangement with my Associate on three days notice. 9. Adjourn to 15 March 2010 at 9.30 before me for further directions. ********** 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.