Illawarra Retirement Trust v Denham Constructions Pty Ltd (No.2) [2015] NSWSC 1032

Supreme Court New South Wales

Medium Neutral Citation: Illawarra Retirement Trust v Denham Constructions Pty Ltd (No.2) [2015] NSWSC 1032 Hearing dates: On the papers Date of orders: 28 July 2015 Decision date: 28 July 2015 Jurisdiction: Equity Division - Technology and Construction List Before: Darke J Decision: Order that each party bear its own costs of the proceedings. Catchwords: COSTS – general rule that costs follow the event – after commencement of proceedings defendant makes concessions so that some issues fall away – defendant successful on remaining issues – both parties achieve a roughly equivalent degree of success – order that each party bear own costs Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW) Civil Procedure Act 2005 (NSW) s 98(1) Uniform Civil Procedure Rules r 42.1 Cases Cited: Dualcorp Pty Limited v Remo Constructions Pty Limited [2009] NSWCA 69; (2009) 74 NSWLR 190 Illawarra Retirement Trust v Denham Constructions Pty Ltd [2015] NSWSC 823 Sabah Yazgi v Permanent Custodians Limited (No.2) [2007] NSWCA 306 Category: Costs Parties: Illawarra Retirement Trust (plaintiff) Denham Constructions Pty Ltd (defendant) Representation: Counsel: M Christie SC, B Michael (plaintiff) D Macfarlane (defendant)

Solicitors: K&L Gates (plaintiff) Crisp Legal (defendant) File Number(s): 2015/176053 Publication restriction: Nil.

Judgment 1. Judgment was given in this matter on 25 June 2015 (see Illawarra Retirement Trust v Denham Constructions Pty Ltd [2015] NSWSC 823 – "the Primary Judgment"). The plaintiff's Summons was dismissed, and costs were reserved. The parties remain in dispute on the issue of costs. 2. Each side has provided a written submission on the issue. As neither side has indicated that an oral hearing is necessary, the matter has been dealt with on the papers. 3. The plaintiff submits that the appropriate order is that each party pay its own costs. In the alternative, it submits that the defendant should pay the plaintiff's costs up to and including 18 June 2015 on an indemnity basis, and thereafter the plaintiff pay the defendant's costs. 4. The defendant submits that the appropriate order is that the plaintiff pay the defendant's costs on and from 19 June 2015. 5. Before summarising the competing contentions, it is desirable to record certain matters concerning certain events leading up to the litigation, and the course of the litigation. 6. The plaintiff as Principal entered into a Construction Contract with the defendant as Contractor on 27 March 2013 for the construction of a residential aged care facility. On 15 May 2015, the plaintiff issued a notice of termination of the contract, pursuant to the right to terminate for convenience given by clause 40A.1 of the contract. The notice provided, inter alia, that the Principal was terminating the contract "with effect from Friday 29 May 2015". 7. On 27 May 2015, the first defendant submitted Progress Claim No. 25 in the amount of $2,892,763.13 in respect of work done up to 27 May 2015. On 29 May 2015, the defendant submitted Progress Claim No. 26 in the sum of $3,783,899.71 in respect of work done up to 29 May 2015. Both progress claims were stated to be payment claims made under the Building and Construction Industry Security of Payment Act 1999 (NSW) ("the Act"). 8. It is clear that the items the subject of Progress Claim No. 26 very largely, but not entirely, duplicated the items the subject of Progress Claim No. 25. 9. On 5 June 2015 the plaintiff wrote to the defendant and sought undertakings that the defendant would not take further steps in relation to the payment claims and in particular would not seek to have them adjudicated upon. On 10 June 2015, the defendant declined to give the undertakings sought. 10. The proceedings were commenced by Summons filed on 15 June 2015. Interlocutory and final injunctive relief was sought to prevent the defendant from having the payment claims adjudicated upon. The Summons was supported by a List Statement by which it was contended that both payment claims were invalid for various reasons including that they contained items that had previously been adjudicated upon, and that the service of the claims so closely in time amounted to an abuse of process. It was also contended that there was no available reference date to support Progress Claim No. 26. 11. After the commencement of the proceedings, the defendant withdrew Progress Claim No. 25 and agreed to either vary or not press certain parts of Progress Claim No. 26. As a result, the issues were narrowed considerably. The remaining issues concerned whether Progress Claim No. 26 was invalid because there was no reference date to support it, or because of the inclusion of the "cash held" item (see the Primary Judgment at [8]). The latter issue was raised by way of an Amended List Statement filed on the day of the hearing. The defendant was ultimately successful on those remaining issues. 12. I also note that late on Friday, 19 June 2015 (after the defendant had withdrawn Progress Claim No. 25 and agreed to vary or not press certain parts of Progress Claim No. 26) the defendant made an offer which was expressed to be without prejudice save as to costs. The offer was to settle the proceedings on the basis that the proceedings be discontinued with no order as to costs, and an agreement to the effect that Progress Claim No. 26 (save to the extent it had been varied or not pressed) was a valid payment claim under the Act. The offer, which remained open until 10am on Monday, 22 June 2015, was not accepted by the plaintiff. 13. The plaintiff submits that both parties had a degree of success. Its primary position was that each party pay its own costs. It was submitted in the alternative that up to 18 June 2015, when Progress Claim No. 25 was withdrawn and Progress Claim No. 26 was agreed to be varied or not pressed in part, the plaintiff was successful and should have its costs to that point. It further submitted that such costs be paid on an indemnity basis because it was unreasonable for the defendant: 1. to include amounts that had been the subject of an earlier adjudication, contrary to the well-established principle enunciated in Dualcorp Pty Limited v Remo Constructions Pty Limited [2009] NSWCA 69; (2009) 74 NSWLR 190 at [53]; and 2. to serve two substantially overlapping payment claims "almost simultaneously" which was an abuse of process under the Act. 1. The defendant submitted that the commencing position is that the costs follow the event, so that the successful party is entitled to costs (see Sabah Yazgi v Permanent Custodians Limited (No.2) [2007] NSWCA 306 at [24]). The defendant submitted that it was the successful party, although it accepted that in view of the withdrawal of Progress Claim No. 25 and parts of Progress Claim No. 26, it was appropriate for each party to pay its own costs prior to 19 June 2015. The defendant submitted that the plaintiff, in contending that there was no reference date to support Progress Claim No. 26, was seeking to go back on an agreement as to when the termination of the contract would take effect. Moreover, it was put that such attitude made the proceedings inevitable. It was further submitted that the plaintiff ought to have accepted its offer. Not only did it fail to accept the offer, but it proceeded to raise a further issue, upon which it failed. The plaintiff submitted that the offer, not being a Calderbank offer or one made under the Uniform Civil Procedure Rules, was not relevant, but even if it was, it contained no real element of compromise. 2. Section 98(1) of the Civil Procedure Act 2005 (NSW) provides: "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 ordered on the ordinary basis or on an indemnity basis." 1. It was not suggested that any other statutory provision or rule of court was relevant, save for Uniform Civil Procedure Rules r 42.1 which provides: "Subject to this Part, if the court makes an 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." 1. Neither party submitted that costs should simply follow the event in this case. This no doubt reflects the difficulty of identifying the successful party in relation to the event. 2. The dispute arose after the defendant served two payment claims within a short interval of time. It is accepted by the defendant that Progress Claim No. 25 included claims for work done after 30 April 2015, so could not be considered to be a payment claim in relation to that reference date. It seems to me therefore that the service of the largely overlapping payment claims on 27 May 2015 and 29 May 2015, which included at least some items that had been the subject of an earlier adjudication, raised serious questions as to whether the defendant was engaged in an abuse of process. The proceedings were quickly commenced on 15 June 2015 following the failure of the defendant to give the undertakings sought of it. 3. The proceedings were rapidly progressed, and by 18 June 2015 the defendant had effectively changed course so that the questions concerning abuse of process and repetition of adjudicated claims fell away. There remained issues specific to Progress Claim No. 26, principally whether there was an available reference date to support it. 4. Prior to the hearing, the defendant sought an agreement to the effect that Progress Claim No. 26 was valid, and that there be no order as to the costs of the proceedings. That offer was open for acceptance until 10am on 22 June 2015, the day before the hearing date that had been set (on 17 June 2015). The offer perhaps involved a small degree of compromise as to costs. 5. In my opinion, viewing the matter overall, both parties can be seen to have achieved a substantial degree of success. The conduct of the defendant in pursuing for a time both Progress Claim No. 25 and Progress Claim No. 26 was arguably an abuse of process, and the plaintiff was well justified in commencing the proceedings. The defendant, to its credit, modified its position reasonably quickly, and then offered an agreed solution. The defendant's modified position was ultimately vindicated. 6. In these circumstances, I think it is appropriate that the burden of the costs of the proceedings be shared between the parties to appropriately reflect the degree of success they each obtained. 7. Sensibly, no party suggested that costs be dealt with on an issue by issue basis. 8. An alternative would be for costs to be dealt with on a temporal basis. There would be some logic, for example, in an order that the defendant pay the plaintiff's costs up to a certain time (say, 19 June 2015) and the plaintiff pay the defendant's costs thereafter. 9. Ultimately, I have come to the conclusion that in all the circumstances, the most appropriate order for costs is that each party bear its own costs of the proceedings. Such an order reflects my view that both parties achieved a roughly equivalent degree of success, and there is no conduct that seems to me to warrant the making of any award of indemnity costs. The order has the further attraction that it avoids the possibility of the parties having to engage in a process of costs assessment. 10. Accordingly, the Court orders that each party bear its own costs of the proceedings, including this application for costs.