Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Ku-ring-gai Council v Chan (No 2) [2018] NSWCA 73 Hearing dates: On the papers Date of orders: 11 April 2018 Decision date: 11 April 2018 Before: McColl JA at [1]; Meagher JA at [1]; Sackville AJA at [1] Decision: 1. Set aside order 2 made on 30 September 2017 and in lieu thereof order that the plaintiffs pay the fourth defendant's costs of their claim against it on the ordinary basis. 2. Order that the appellant Council pay the costs of the first and second respondents of this application. Catchwords: COSTS – where appeal by Council (fourth defendant) allowed from judgment in favour of plaintiffs – where plaintiffs rejected informal Calderbank letter from Council – whether costs incurred after offer rejected be assessed on the indemnity basis – where claim asserted "novel" duty of care on the principal certifying authority to avoid pure economic loss to subsequent purchaser – where close legal and factual analysis of relationships between parties required – where no lay or expert evidence served on plaintiff at time of offer – not unreasonable to refuse to settle Cases Cited: Chan v Acres (No 3) [2016] NSWSC 1389 Jones v Bradley (No 2) [2003] NSWCA 255 Ku-ring-gai Council v Chan [2017] NSWCA 226 Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 Category: Costs Parties: Ku-ring-gai Council (Appellant) Rebecca Chan (First Respondent) Warren Cox (Second Respondent Robert Acres (Third Respondent) Mitchell Howes Civil & Structural Engineers Pty Ltd (Fourth Respondent) Representation: Counsel: P J Bambagiotti with V Misra (Appellant) M Dempsey SC with M Klooster (First and Second Respondents) No appearance (Third Respondent) Mitchell Howes Civil & Structural Engineers Pty Ltd (Fourth Respondent) (Submitting appearance) Solicitors: Mills Oakley (Appellant) Snelgroves Lawyers & Notary Public (First and Second Respondents) Gilchrist Connell Lawyers (Fourth Respondent) File Number(s): 2015/377941 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Citation: [2015] NSWSC 1885 Date of Decision: 11 December 2015 Before: McDougall J File Number(s): 2015/48496 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Judgment 1. THE COURT: The appeal by the Council (the fourth defendant below) from the judgment entered in favour of Ms Chan and Mr Cox (the plaintiffs below) was allowed: Ku-ring-gai Council v Chan [2017] NSWCA 226. The question of the costs at first instance was not addressed because the notice of appeal did not state the costs orders sought by the Council in the event its appeal was successful. That was due to the notice of appeal being filed before the costs of the proceedings below were determined: Chan v Acres (No 3) [2016] NSWSC 1389. 2. Order 7 made by this Court directed those parties to confer with a view to agreeing on the costs orders that should be made between them in relation to the proceedings at first instance. In the absence of agreement, the parties were to exchange written submissions, any remaining costs question then to be decided on the papers. 3. The relevant costs order made by the primary judge was (Judgment [131]): 2 Order the fourth defendant to pay the plaintiffs' costs of their claim against it. 1. In place of order 2, the Council seeks an order that the plaintiffs pay its costs of the proceedings at first instance, with the costs incurred from 28 November 2014 to be assessed on an indemnity basis. The order for indemnity costs is sought relying on a rejected Calderbank offer made by letter dated 4 August 2014 to settle the plaintiff's claim for $50,000 inclusive of costs. That claim was for damages in negligence exceeding $500,000 on the part of the Council as principal certifying authority. The circumstances of the claim are summarised in this Court's judgment at [2]–[4]. 2. The plaintiffs accept that they should be ordered to pay the Council's costs of the proceedings at first instance. However, they oppose being ordered to do so for any period on an indemnity basis. They also submit that the Council should bear its own, and pay their, costs of and incidental to the filing of its amended defence (the Amended Technology and Construction List Response of 9 October 2015). 3. The relevant principles are not in issue. An offeree who does not accept an informal Calderbank offer and thereafter obtains a judgment less favourable than the offer will not necessarily be required to pay indemnity costs from the date of the offer. Such a requirement usually depends on two central considerations, namely, whether there has been a genuine offer of compromise and whether in all the circumstances it was unreasonable for the offeree not to accept it: Jones v Bradley (No 2) [2003] NSWCA 255 at [6]–[9]; Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [8] (Basten JA, McColl and Campbell JJA agreeing). It is not contested that the Council's offer contained a genuine element of compromise. The substantial question remaining is whether it was unreasonable for the plaintiffs to reject it. 4. In our view, it was not. The plaintiffs' claim, as the Council concedes, asserted a "novel" duty of care on the principal certifying authority to avoid pure economic loss to a subsequent purchaser. An assessment of the merits of that claim depended in part on the presence or absence of salient features which in earlier cases have assisted in determining whether such a duty should be imposed. Those issues in turn depended on a close analysis of the legal and factual relationships between the plaintiffs, the builder and the Council. 5. At the time the offer was made, no lay or expert evidence had been served by the Council or other defendants, namely, the owner-builder and the engineer retained by that builder to inspect the works as they proceeded. It was reasonable to expect that the Council's evidence would include that of its building surveyor who inspected the owner-builder's works on several occasions. In the absence of the defendants' evidence and the opportunity to undertake an analysis of the parties' relationships, it was not unreasonable for the plaintiffs to refuse an offer to settle the proceedings for little more than the costs likely to have been incurred to that time. 6. Accordingly, the plaintiffs should pay the Council's costs of the proceedings on the ordinary basis. This Court is not in a position to assess the merits or otherwise of an application in respect of costs thrown away by the amendment of the Council's defence in October 2015. That occurred during the course of the final hearing and was not the subject of any separate costs order by the primary judge. 7. The orders of the Court are: 1. Set aside order 2 made on 30 September 2016 and in lieu thereof order that the plaintiffs pay the fourth defendant's costs of their claim against it on the ordinary basis. 2. Order that the appellant Council pay the costs of the first and second respondents of this application. ********** 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: 11 April 2018