Supreme Court New South Wales Medium Neutral Citation: Corbett v Nguyen (No 2) [2012] NSWSC 673 Hearing dates: 12 June 2012 Decision date: 22 June 2012 Jurisdiction: Equity Division Before: Windeyer AJ Decision: Orders: (1) Subject to order (6), the plaintiff pay 90% of the defendants' costs of the proceedings between plaintiff and defendants including the cross claim between them those costs to include all costs thrown away or wasted as a result of amendments to the statements of claim. (2) The defendants pay the costs of the second cross defendant of the cross claim between them. (3) The plaintiff pay the defendants' costs of the cross claim against the second cross defendant and indemnify the defendants against the costs payable pursuant to order (2). (4) The proceedings on the judgment in favour of the plaintiff be stayed pending assessment of the costs of the defendants payable by the plaintiff or until further order and that upon assessment such costs be set off against the judgment sum. (5) That the costs of the defendants payable by the plaintiff be further set off against the costs payable by the defendants to the plaintiff pursuant to orders of White J of 28 November 2008. (6) No order as to the costs of the hearing on 12 June 2012. (7) Liberty to apply in respect of order (4). (8) The exhibits may be returned. Catchwords: COSTS- circumstances where cross claim dismissed because plaintiff's claim failed. SET OFF- costs against costs and costs against judgment. Legislation Cited: Civil Procedure Act 2005, ss 98(1), 101(4) Uniform Civil Procedure Rules 2005, Parts 42.1, 42.20(1) Cases Cited: Fennell v Supervision & Engineering Services Holdings Pty Ltd and Santos Ltd [1988] SASR 6 Furber v Stacey [2005] NSWCA 242 GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 688 Gold Coast Bakeries (Qld) Pty Ltd v Heat & Control Pty Ltd [1992] 1 Qd R 162 Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674 Hughes Bros Pty Ltd v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney (Foster AJ, 25.10.1999, unreported) BC9907002 Jones v Bradley (No 2) [2003] NSWCA 258 Lahoud v Lahoud [2006] NSWSC 126 Lombard Insurance Co (Australia) Ltd v Pastro (1994) 175 LSJS 448 McCourt v Cranston [2009] WASC 56 Smec Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 120 Thrustout d.Barnes v Crafter (1772) 2 Wm Bl 826; 96 ER 487 Wentworth v Wentworth (Young J, 12.12.1994, unreported) BC403409 Wentworth v Wentworth (CA, 21.2.1996, unreported) BC9600213 Category: Costs Parties: James Edmund Corbett (Plaintiff) Hau Nhon Nguyen (First Defendant) Hoa Nhon Nguyen (Second Defendant) Ai Nhon Nguyen (Third Defendant) Abaco Machines (Australasia) Pty Ltd (Trustee of the Tuyet Superannuation Fund) (Fourth Defendant) David Duc Van Nguyen (Second Cross Defendant) Representation: Counsel: H Altan (Plaintiff) J C Thompson (Defendants) N J Owens (Second Cross Defendant) Solicitors: Atkinson Vinden Lawyers (Plaintiff) Gerard Gooden Solicitor (Defendants) Yeldham Price O'Brien Lusk (Second Cross Defendant) File Number(s): SC 2004/185405 Judgment 1HIS HONOUR: As was apparent from my judgment on 23 May, by the time this action came on for hearing at least as between plaintiff and defendants the parties were really fighting for their costs. The questions of costs and claims of set-off were argued on 12 June 2012. 2The orders the various parties seek can be summarised as follows: Plaintiff: On the basis the plaintiff partly succeeded, an order the defendants pay part of his costs. Defendants: (as contained in a written document handed up by counsel for the defendants) (a) The plaintiff to pay the defendants costs: (i) on an indemnity basis up to 12 November 2009 (the date of filing of the third amended statement of claim; (ii) thrown away as a result of the vacating of the hearing listed for 10 March 2011; and (iii) interest on those costs from the date(s) upon which the costs were paid. (b) The costs of the plaintiff of defending the motion for security for costs be set off against the costs payable to the defendants pursuant to (a). (c) the sum of $24,281.26 ordered to be paid by the defendants to the plaintiff be set off against the costs and interest payable to the defendants pursuant to (a). (d) The cross-defendants pay, and to be jointly and severally liable to pay, the defendants' costs: (i) of the claim and cross-claim on a party/party basis from and including 12 November 2009; and (ii) interest on those costs from the date(s) upon which the costs were paid. (e) The first cross-defendant indemnify the second cross-defendant in respect of the costs and interest payable pursuant to (d). (f) The first cross-defendant pay the second cross-defendant's costs: (i) on an indemnity basis up to 12 November 2009; (ii) thrown away as a result of the vacating of the hearing listed for 10 March 2011; and (iii) interest on those costs from the date(s) upon which the costs were paid. (g) The second cross-defendant bear his own costs incurred from 12 November 2009. Solicitor/Second Cross Defendant: Costs of the cross claim against the cross claimant on a party and party basis up to 3 December 2007 and thereafter on the indemnity basis. Discussion 3The action had a difficult history. It proceeded eventually on a third amended statement of claim being the fourth pleading. It was first fixed for hearing on 10 March 2011, but that date was vacated as the plaintiff was not ready to proceed. The final statement of claim pleaded a case which differed in many respects from the claim originally pleaded. The first cross claim filed on 3 November 2004 was against Mr Corbett only. That was a claim for rectification. The amended cross claim filed on 18 December 2006 joined the solicitor as an additional cross defendant. There were various amendments to the cross claim of no great significance. The hearing was on the third amended cross claim filed either in February or March 2010 (documents with the court seal bear different dates). 4As I said in my judgment, there were two main issues at the outset. One was essentially abandoned when agreement was reached on a figure as to entitlements. The plaintiff failed on the construction issue. There was, however, a claim on which the plaintiff succeeded to some extent related to lost earnings on moneys to which the plaintiff was admittedly entitled to have paid to the superannuation fund, at least on his giving instructions as to the nominated fund. There was a body of expert evidence for each of the plaintiff and defendants on this issue, but eventually figures were agreed as to earnings depending on the ultimate construction result. While the defendants did not concede any entitlement, there was little argument about it. It could be said that the plaintiff succeeded at least in part on this claim, but certainly not to the extent originally sought. 5The relevant statutory provisions are s 98(1) of the Civil Procedure Act 2005 and Parts 42.1 and 42.20(1) of the Uniform Civil Procedure Rules. These are as follows: "98(1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. 42.1 Subject to this Part, if the court makes any order as to costs, the court is to order that the 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. 42.20(1) If the court makes an order for the dismissal of proceedings, either generally or in relation to a particular cause of action or in relation to the whole or part of any claim, then, unless the court orders otherwise, the plaintiff must pay the defendant's costs of the proceedings to the extent to which they have been dismissed." (the dictionary provides that plaintiff includes cross claimant and defendant includes cross defendant) In addition, there is to be taken into account the law relating to Calderbank offers. 6To have regard to Part 42.1 it is necessary to decide upon the event. In some cases there can be a number of events each of which relates to a particular issue. In other cases the event is which of the parties is a winner and which is a loser in the overall sense. In the present case I consider that as between the plaintiff and defendants, the defendants were the clear winners. They won on construction perhaps only because the plaintiff failed; they would have won on rectification had the plaintiff succeeded. The claim for aged base contributions was abandoned and the claim for an additional $50,000 failed. Those were the substantial issues before the court. Those in truth were the events. Leaving aside claims for indemnity costs, there is no reason why costs should not follow the event, but there is a question whether there should be some deduction because the defendants did fail on the claim for earnings on the fund albeit that most of the material the plaintiff put forward was based upon incorrect entitlements. On one basis they failed because while payment was to be made when roll over instructions were given (which did not happen until 2011) I considered it reasonable to decide the moneys in default of instructions should have been paid to the original fund. 7It will be clear from what I have said that although the cross claim against the plaintiff was dismissed that was because the plaintiff failed on the construction claim. The cross claim was the obvious result of the plaintiff's claim. The two matters should be considered together and the cross claim should be considered as the reasonable and proper result of the plaintiff bringing the claim which he did. In other words, while there is judgment for the plaintiff on the cross claim against him, he should bear the costs of the cross claim and an order otherwise made pursuant to Rule 42.20(1). So far as a reduction is concerned, it is not possible to be perfect or accurate. I consider a reduction of 10% is a proper result to recognise the success of the plaintiff on the earnings claim and if anything that is somewhat generous. 8I turn to the defendants' claim for indemnity costs against the plaintiff. The first claim is that costs should be paid on the indemnity basis up to 12 November 2009 when the third amended statement of claim was filed. The basis for this would be that the claim was changed in a substantial manner and that most of the work done up to that date was wasted. No attempt was made to explain to me or to prove what work was said to be wasted. Four affidavits of the plaintiff sworn before the final version of the statement of claim was filed were read in the proceedings and only one after that. The original statement of claim claimed fund entitlements to its date and the $50,000. So did the second version although it appeared to be based on a claim on the value of the assets of the fund. The third version maintained much the same claims. The final version omitted the value based claims and sought fund based earnings by reference to the Australian Prudential Regulation Authority's earnings rates which were ultimately agreed. It also sought the $50,000 and the balance in the plaintiff's account in the fund. Claims of maladministration of the fund were abandoned. The general costs of the action would, I assume, include costs thrown away as a result of the amendments but as a precaution I will make that order. Such an order does include wasted costs of preparing defences to abandoned claims. 9Counsel for the defendants in his written submissions put forward some other reasons for making a special costs order. These included: "an opportunistic exploiting of a drafting error of the solicitor"; the fact that there were two mediations; the time taken to dispose of the proceedings; and the costs expended by the parties being quite out of proportion to the amount claimed. The paragraphs of my judgment, namely [42] and [44] to [46] relied on for the first submission do not support it. The other ones cannot bear on the matter unless it were established fault lay on the plaintiff. That was not established before me. I do not consider the matters in this and the preceding paragraph justify a claim for indemnity costs on the claimed grounds. 10The next claim is costs thrown away as a result of the vacation of the hearing listed for 10 March 2011. There appears to be no doubt that the application to vacate the hearing date was made by Mr Corbett in person who at that stage was endeavouring to re-engage new solicitors. The order for vacation was made by Hallen AsJ on 11 February 2011. Costs were reserved. In accordance with the rules, they would be part of the ultimate costs order. 11The final claim for indemnity costs of the defendants is based upon offers made on 11 September 2002 and 21 February 2006. As to the first, the accountants for the superannuation fund wrote to Mr Corbett stating among other things that his entitlement was $50,000 and seeking instructions for rollover. On any basis that was not an offer of compromise on Calderbank principles. The second offer was contained in a "without prejudice save as to costs" letter from the solicitor for the defendants to the plaintiff's then solicitors of 21 February 2006, the effect of which was to offer to pay "$50,000 plus earnings since 11 September 2002 standing to your client's credit in his account with the Tuyet Superannuation Fund to whatever fund he wished to apply those rollover moneys" on the basis that each party would pay its own costs. This offer was made before the solicitor was joined as a cross defendant to the cross claim. In hindsight it would have been wise to accept that offer. Unless there were any substantial earnings from 1 July to 11 September 2002 (and the evidence is that over the full year there were no earnings but a reduction in value) the offer was in essence what the plaintiff achieved leaving aside the question of costs. If the costs are now to be taken into account the offer if accepted would have brought about a result substantially more favourable to the plaintiff than the result now achieved. The question then is whether failure to accept the offer "warrants departure from the ordinary rule as to costs": Smec Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 120 at [10]; Jones v Bradley (No 2) [2003] NSWCA 258 at [8]. This depends upon whether the defendants can argue it was unreasonable to refuse the offer. One of the matters to be taken into account in determining matters such as this is the state of the evidence at the time when the offer was made. The evidence of the defendants at least as it was read before me was not filed or served at the time that offer was made. Bearing that in mind, although one of the purposes of the court encouraging settlement offers is to bring about settlement of claims at a relatively early stage it was not unreasonable for the plaintiff not to accept that offer particularly in light of the general reluctance of any court to declare a contract or part of it void for uncertainty. This is a matter on which I have had some doubts but the defendants in this case bear the onus. This claim for indemnity costs fails. 12The next claim of the defendants is that the order for costs in favour of the plaintiff on the defendants' application for security for costs should be set off against the costs to be awarded here in favour of the defendants. The court has an inherent power to make such an order: Wentworth v Wentworth (Young J, unreported, 12 December 1994) BC403409, which was confirmed in the Court of Appeal: Wentworth v Wentworth (Court of Appeal, 21 February 1996, unreported) BC9600213. It is clear that the costs to which the defendants will be entitled from the plaintiff will far exceed the plaintiff's costs on the application for security of costs which, I understand, have not been assessed and no order has been made under Rule 42.7(2). It is appropriate in the exercise of discretion that the set-off order should be made and that proceedings on the judgment be stayed subject to conditions. 13The final claim of the defendants is that the costs judgment should be set off against the judgment in favour of the plaintiff of $24,281.26. I consider the general equitable principles of set off allow such an order. The case generally relied upon to support such orders was decided in 1772 namely Thrustout d.Barnes v Crafter (1772) 2 Wm Bl 826; 96 ER 487 but the general principle was followed in Goldsbrough Mort & Co Ltd v Quinn (1910) 10 CLR 674 when in an appeal on a claim for specific performance which succeeded an order was made that the costs of the trial and appeal be set off against the purchase price payable under the contract. I consider the order sought should be made. 14I turn to the costs on the cross claim as between the defendants and the solicitor cross defendant. The claim was dismissed because the claim against the defendants so far as relevant to the cross claim was dismissed. Counsel for the defendants referred me to a number of cases including Fennell v Supervision & Engineering Services Holdings Pty Ltd and Santos Ltd [1988] SASR 6; Lombard Insurance Co (Australia) Ltd v Pastro (1994) 175 LSJS 448; GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 688; McCourt v Cranston [2009] WASC 56 and Furber v Stacey [2005] NSWCA 242. 15In general those cases address the question of whether an unsuccessful plaintiff should pay the costs of the successful cross defendant to a cross claim which was dismissed because the plaintiff's claim failed. In none of those cases was it held, or I think even suggested that the successful cross defendant should pay the costs of the cross claimant whose claim was dismissed. It might be said that there is no event, that even if there is an event, it is the dismissal. In the absence of any authority being referred to me I am not prepared to make an order making the solicitor responsible for the costs of the defendants either of the claim or the cross claim. 16On dismissal, in the ordinary course costs would follow that event: Rule 42.20(1). Are there facts which would justify a different order? The simple fact is that at least so far as the $50,000 claim is concerned, had the deed been properly drafted there would have been no doubt as to the result. The solicitor accepted what was intended. He failed to draw an appropriate deed. Should he get his costs? I have found this a difficult question. However, in Lombard the third party claim was unsuccessful solely because the plaintiff's claim failed; and the same position arose in Gold Coast Bakeries (Qld) Pty Ltd v Heat & Control Pty Ltd [1992] 1 Qd R 162. Had there been a separate trial of the action between plaintiff and defendants there would have been no action against the solicitor but that does not mean the cross claim was not proper. I have considered whether I should make no order as to costs of the solicitor on the cross claim. This is, of course, a question of discretion but in light of the decisions mentioned and because detailed attention was not given in my judgment to this cross claim I consider the usual order should be made unless offers of settlement bring about a different result. 17Offers of settlement were made on behalf of the solicitor to the defendants as follows: 3 December 2007 - $25,000 including costs; 8 October 2009 - $40,000 including costs; 26 February 2010 - $50,000 plus costs by way of offer of compromise; 10 December 2010 - $200,000 including costs by way of Calderbank letter. 18None of these was accepted. Various counter offers were made by both defendants and the plaintiff which are, I think, not relevant. In hindsight, of course, the defendants could have accepted the offer of $200,000 and been that much better off. The question is whether it was unreasonable not to accept the offer. Counsel for the defendants argued that on the date each offer was made the costs of the defendants to that date were substantially in excess of the offer amounts and there remained the risk the plaintiff would succeed. In a case such as this, the cross defendant is put in a very difficult position so far as settlement offers are concerned. The fact the defendants' costs incurred were greater than the offer is not a deciding factor as it is quite unlikely all those costs would be allowed on assessment, and certainly not against the cross defendant. At the time the final offer was made and most of the evidence available the defendants needed to assess, first the strength of the plaintiff's claim and second, the strength of their cross claim against the solicitor. Leaving aside the aged base claim which really had nothing to do with the solicitor, the plaintiff's claim was limited to $50,000, earnings on that sum and costs. In those circumstances, and bearing in mind the need for proportionality so far as costs were concerned, had the plaintiff succeeded the claim against the solicitor had a good chance of success for a figure considerably greater than the offer sum. A cross defendant is in a difficult position so far as offers are concerned but Calderbank offers inclusive of costs pose problems for the recipient who needs to assess his own costs and in this case the probable costs of the plaintiff as well as a possible judgment for the plaintiff. I do not consider it unreasonable not to accept either the third or fourth offer. The first and second can be set aside. 19The next question is whether an order should be made that the plaintiff pay the defendants' costs of the cross claim and the costs I propose to order for the cross defendant. I have listed some of the authorities which bear on this. The most recent binding on me is, I think, Furber v Stacey. Hodgson JA and Einstein J were in the majority the latter agreeing with the former. Hodgson JA accepted as correct the statement of principle of King CJ in Lombard provided it was qualified as suggested by Finn J in GEC Marconi Systems Pty Ltd. The stated principle, which is accepted as a guiding principle not the guiding principle is as follows: "I think that a guiding principle for the exercise of the discretion in such cases may be formulated as follows. Where the nature of the plaintiff's claim, or allegations in support thereof, render it reasonable, having regard to the purposes of third party procedure, to bring in the third party, and the third party claim is unsuccessful solely by reason of the failure of the plaintiff to sustain its claim or the relevant allegations, the defendant should ordinarily recover from the plaintiff the costs of the third party claim including those which the defendant is ordered to pay to the third party. The emphasis is on the word "ordinarily". The discretion is unfettered and a variety of factors may properly enter into the exercise of it." The qualifications to this are that close attention needs to be paid to the particular facts; that reasonableness does not necessarily carry an order; that neither does one claim causing the other; and that the cross claim may involve private issues irrelevant to the plaintiff: GEC Marconi [72-75]. 20In the present case the plaintiff had no relationship with the solicitor but knew of the involvement with the solicitor. The evidence of the solicitor was significant to establish the intention of the defendants on the rectification claim. While the case is not like that of a flow on from contractor to subcontractor I do not regard the cross claim as involving purely private interests. It was an obvious flow on from the plaintiff's claim and it was reasonable to make the claim and in the circumstances when considering discretion I consider it fair to make an order that the plaintiff pay the costs of the cross claimant to the cross claim against the solicitor and indemnify the cross claimant against the costs order in favour of the solicitor. Interest on Costs 21The defendants seek interest on costs under s 101(4) of the Civil Procedure Act 2005. No evidence was put before me to support this claim. I am aware that the solicitors for the defendants, in response to a direction of the Chief Judge, filed a schedule of costs rendered up to 4 November 2010 the total being $290,484.19. There is no evidence as to whether any payment has been made of any of the 36 invoices making up the total amount. I realize that in Lahoud v Lahoud [2006] NSWSC 126, Campbell J at 81 said this was not necessary and an order could be framed so that interest would run from dates of payment. While I accept that could be done I am, with respect, of the view that there should be evidence to support such an order and in the absence of evidence I do not consider such an order should be made. As I have said before, the plaintiff and defendants were fighting for costs quite disproportionate to the amounts at issue. One would expect any claim for interest to be supported by evidence. I note that in Hughes Bros Pty Ltd v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney (Foster AJ, 25 October 1999, unreported) BC9907002, a case relied on by the defendants, there was evidence of payments. In the same way I consider that if a claim is said to be justified by the inordinate delay in bringing the proceedings to a hearing it would need to be established this was the fault of the plaintiff. I have had no connection with the case during its preparation and cannot decide on fault. Had there been evidence of payment I would have ordered interest on costs incurred prior to the final amendment to the statement of claim from the dates of payment. Costs of costs argument 22The parties in the end were fighting for costs. Unfortunately the argument on costs was not well presented. The solicitors for the plaintiff wrote to the solicitor for the defendants on 31 May suggesting that as a costs argument could be complex they should try to reach some common ground and asked that they be given, by 5 June, an outline of the defendants' position as to costs and an outline of the costs orders which would be sought. There was no response. At the hearing before me on 12 June, counsel for the defendants read out the orders he sought so quickly they were impossible to grasp: later he produced written copies. When it came his turn to address he read quickly from a document that no-one else had. I said that he would have to slow down and asked what he was reading. I was told that it was an outline of submissions which was then passed to me and the other parties. Had the court and the other parties had this in reasonable time before the costs hearing, it might have proceeded in a much more efficient and orderly manner. That does not require an order the defendants pay the costs of the costs hearing. I consider a fair result is there be no order as to costs so that the parties bear their own. Orders 1. Subject to order 6, the plaintiff pay 90% of the defendants' costs of the proceedings between plaintiff and defendants including the cross claim between them those costs to include all costs thrown away or wasted as a result of amendments to the statements of claim. 2. The defendants pay the costs of the second cross defendant of the cross claim between them. 3. The plaintiff pay the defendants' costs of the cross claim against the second cross defendant and indemnify the defendants against the costs payable pursuant to order 2. 4. The proceedings on the judgment in favour of the plaintiff be stayed pending assessment of the costs of the defendants payable by the plaintiff or until further order and that upon assessment such costs be set off against the judgment sum. 5. That the costs of the defendants payable by the plaintiff be further set off against the costs payable by the defendants to the plaintiff pursuant to orders of White J of 28 November 2008. 6. No order as to the costs of the hearing on 12 June 2012. 7. Liberty to apply in respect of order 4. 8.Exhibits may be returned. ********************* 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: 22 June 2012