Mt Cotton Constructions Pty Ltd v Greer (No 2)
[2017] QCAT 98
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- Unreported Judgment
- Mt Cotton Constructions Pty Ltd v Greer (No 2)[2017] QCAT 98
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Mt Cotton Constructions Pty Ltd v Greer (No 2)[2017] QCAT 98
Mt Cotton Constructions Pty Ltd v Greer (No 2)[2017] QCAT 98
CITATION: | Mt Cotton Constructions Pty Ltd v Greer (No 2) [2017] QCAT 98 |
PARTIES: | Mt Cotton Constructions Pty Ltd (Applicant) v Damien Greer And Kate Greer (Respondents) |
APPLICATION NUMBER: | BDL190-14 |
MATTER TYPE: | Building matters |
HEARING DATE: | On the papers |
HEARD AT: | Brisbane |
DECISION OF: | Member Howe |
DELIVERED ON: | 5 April 2017 |
DELIVERED AT: | Brisbane |
ORDERS MADE: |
|
CATCHWORDS: | PROCEDURE – COSTS – INDEMNITY COSTS – where applicant’s claim dismissed and respondents’ counter application dismissed – usual order costs follow the event - offer to settle under r86 before hearing – whether unreasonable for the applicant not to accept the offer – privilege – Calderbank offers – whether appropriate to award indemnity costs – appropriate scale of costs Queensland Civil and Administrative Tribunal Act 2009 (Qld), s 102(1), s 102(3)(f), s 105 Queensland Civil and Administrative Tribunal Rules 2009 (Qld), s 86 Davies v Nyland (1975) 10 SASR 76 Unilever PLC v The Procter & Gamble Co [2001] 1 All ER 783 Muller v Linsley & Mortimer (a firm) [1996] PNLR 74 Cutts v Head [1984] 1 All ER 597 Barescape Pty Ltd as trustee for the V’s Family Trust & Anor v Bacchus Holdings Pty Ltd as trustee for the Bacchus Holdings Trust & Anor (No.12) [2012] NSWSC 1591 Lyons v Dreamstarter Pty Ltd [2012] QCATA 071 Oshlack v Richmond River Council [1998] HCA 11;193 CLR 72 Lyons v Dreamstarter Pty Ltd [2011] QCATA 142 AKS Investments Pty Ltd & Anor v National Australia Bank & Anor (No2) [2012] QSC 282 State of Queensland v Hayes (No 2) [2013] QSC 80 Fick v Groves (No2) [2010] QSC 182 Lyons v Dreamstarter Pty Ltd & Anor [2016] QCATA 43 Gilsan v Optus (No 4) [2005] NSWSC 1073 Giller v Procopets (No. 2) [2009] VSCA 72 |
APPEARANCES
This matter was heard and determined on the papers pursuant to s 32 of the Queensland Civil and Administrative Tribunal Act 2009 (QCAT Act).
REASONS FOR DECISION
- [1]By order made 17 January 2017 following a hearing lasting five days the claim of the applicant builder was dismissed and the counter application of the owners also dismissed. The issue of costs remains to be dealt with.
- [2]The parties have filed written submissions on costs. Various offers to settle the proceedings were made prior to hearing, by both sets of parties. Accordingly the chronology of the offers is important.
The Pleadings
- [3]The builder commenced proceedings by application filed 7 August 2014 claiming $350,345.02 as monies due under a cost plus building contract, despite the existence of a written contract for a fixed price executed between the parties. The owners filed a response and counter application on 3 September 2014 asserting the relevant contract between the parties was the fixed price contract of $138,190 plus GST; that additional sums claimed by the builder were for variations which variations failed to comply with requirements of Part 7 of the Domestic Building Contracts Act 2000 (DBCA) and were therefore irrecoverable; claimed to recover the sum of $87,119.40 already paid the builder for variations; and also claimed damages for defective building work estimated at $100,000.
- [4]The builder amended its claim on 16 February 2015 confirming the sum sought of $350,345.02 but now claiming on a quantum meruit basis.
- [5]The owners filed an amended response on 13 March 2015 challenging the builder’s entitlement to claim in quantum meruit but otherwise maintaining the counter application.
- [6]On 25 July 2016 the builder filed a reply to the owners amended response and counter application pleading for the first time amongst other things that the contract was between the director of the builder and the owners rather than between the builder and the owners.
Offers to Settle
- [7]On 26 June 2014, prior to commencement of proceedings, the builder proposed settlement of its claim against the owners by a payment to it of $240,000, the owners claim in respect of defects to be preserved. That was stated to be a Calderbank offer and was made in response to an earlier offer by the owners on 25 June 2014 proposing settlement of all claims between the parties on the basis of a payment of $75,000 by the owners to the builder. The offers were not accepted, as indeed were none of the subsequent offers. Costs apparently formed no part of the compromises.
- [8]On 9 July 2014 the owners made a further offer to settle all claims between the parties on the basis the builder deliver certificates in respect of work carried out at the premises, return certain items and provide the owners with certain electrical wiring details. In exchange the owners proposed paying the builder $100,000 in respect of all claims save for defects not apparent at that date, with each party to bear their own costs. This was also noted to be a Calderbank offer of settlement.
- [9]The builder commenced proceedings on 7 August 2014.
- [10]On 6 November 2015 the owners made a further Calderbank offer of settlement. The offer was to pay the builder $30,000 in settlement of each party’s claim in respect of the works by the builder at the property except for defects not reasonably identified at that time of offer, with each party to bear their own costs in relation to the proceedings. That offer was actively rejected by the builder.
- [11]On 20 June 2016 the builder made an offer to settle the proceedings on the basis of a payment to it of $125,000 inclusive of costs and interest. That offer was rejected by the owners, the owners claiming the available evidence then to hand did not support the quantum claimed by the builder. In the rejection letter the owners’ solicitors pointed out that the costs of the owners to that date were in excess of $150,000.
- [12]Then by letter dated 8 September 2016 the owners again offered to settle the proceedings on the basis that the proceedings be discontinued with each party bearing their own costs, the offer subject to delivery of all certificates required to enable a certifier to certify the work. Again, the offer was identified as a Calderbank offer. The builder replied on 14 September 2016 that, subject to resolution of certain certification issues, the builder was prepared to settle proceedings on a walk away basis as proposed. The offer was not accepted however.
- [13]The owners responded with a further offer on Friday 23 September 2016 in similar terms but this time referring with some particularity to the certificates required and making compromise subject to execution of a deed of settlement. The offer was open for acceptance until Monday 26 September 2016 at 5pm. It was not accepted within time.
- [14]On 27 September 2016 the builder advised it was prepared to settle on the terms outlined in the owners’ letter of 23 September 2016. There was no response from the owners. The builder again wrote on 30 September 2016 seeking urgent confirmation as to settlement and also forwarding a draft deed of settlement.
- [15]The owners solicitors replied that day that their offer of 23 September had not been accepted within time and in discussions between the legal representatives it had been made clear that the owners hearing preparation would commence immediately following expiry of the offer if not accepted.
- [16]The builder made a final attempt at settlement on 4 October 2016 reopening its previous offer of 27 September 2016. That offer was not accepted and it lapsed. The hearing commenced on 10 October 2016.
- [17]The correspondence from the owners invariably contained the qualification “without prejudice save as to costs” and made reference to Calderbank, the English matrimonial case which lends its name to informal offers of settlement carrying the threat of higher cost awards should the offer be unreasonably ignored.
- [18]Correspondence associated with the builder generally bore the words, “without prejudice” only. The owners claim correspondence without the words “without prejudice save as to costs” are privileged and cannot be considered in determining appropriate cost orders. Both parties must waive the privilege in those circumstances and they did not waive it in the Tribunal’s consideration of appropriate cost orders.
- [19]I do not accept that privilege attaches to and prevents consideration of correspondence associated with offers of compromise for the purpose of appropriate cost orders in such simplistic fashion as to turn on use of a particular word formula without consideration to the circumstances associated with the communications.
… In some quarters of the community there is a belief, amounting almost to a superstitious obsession, that the expression “without prejudice” is possessed of virtually magical qualities, and that anything done or said under its supposed aegis is everlastingly hidden from the prying eyes of a Court.[1]
Rather, whether the suggested restriction applies surely comes down to the intention of the parties in using the privileged communications.
- [20]In Unilever PLC v The Procter & Gamble Co[2] Robert Walker LJ in considering authorities noted that the general without prejudice rule governing admissibility of evidence, said to be based on public policy, cannot be the basis of the rule where its application would have the result of preventing a reasonable offer made without prejudice from being considered on the question of costs.
…A consciousness of a risk as to costs if reasonable offers are refused can only encourage settlement… It followed that the only basis for excluding reference to a without prejudice offer on costs must be an implied agreement based on general usage and understanding that the party making the offer would not do so. Such an implication could be excluded by a contrary statement as in a Calderbank offer….[3]
- [21]Whilst the formula words used are a relevant consideration in ascertaining intention, it is the intention behind the communications that is determinative. The use of the Calderbank formula “without prejudice save as to costs” is certainly an effective way of stating clearly that the privileged communications will not be privileged for the purpose of cost orders. But that specific formula is not necessary where it is clear the parties intended correspondence to have that effect.
- [22]I conclude that from at least the time of the offer of settlement made by the owners on 8 September 2016 (which perhaps excludes the offer made by the builder earlier that same day), clearly noted as a Calderbank offer with the stated consequence that if the offer was not accepted the offer would be relied on to seek costs on an indemnity basis, the exchange of offers that followed between the parties formed a connected chain of communication. That chain of communication had a common intention, namely the intention by both parties that the correspondence would fall for consideration of appropriate cost orders should compromise not be achieved. The without prejudice offers were made over the relatively short time span of 20 days commencing with the offer made by the owners on 8 September 2016 bearing the qualification “without prejudice save as to costs”. That offer the builder’s solicitors simply identified in their reply of 14 September 2016 as the owners’ “without prejudice” offer and then went on to suggest ways to complete the certification requirements referred to in the owners’ offer of 8 September 2016. I conclude the correspondence after the owners offer of 8 September 2016 concerning proposed settlement which failed to contain the formula “without privilege save as to costs” was still intended by the parties to be available for the Tribunal’s consideration for such purpose and would, save for my conclusions following concerning the earlier offers by the owners, have been available for consideration on the issue of appropriate cost orders.
Orders Sought
- [23]The builder submits[4] that in the circumstances of the exchange of offers made in the month before hearing, the builder should have its costs on an indemnity basis from 5 October 2016 onwards; alternatively, its costs from 5 October 2016 onwards on the standard basis; alternatively each party bear their own costs; and in the further alternative[5] costs to lie where they fall until 6 November 2015 and the owners to have their costs on the standard basis until 27 September 2016.
- [24]The owners submit[6] they should have their costs on an indemnity basis from commencement of proceedings by the builder or alternatively on a standard basis from commencement of proceedings until 6 November 2015 and an indemnity basis thereafter;[7] alternatively indemnity costs from date of their offer of July 2014 (prior to commencement of proceedings) or alternatively again on a standard basis from 14 July 2014 to 6 November 2015 and thereafter on an indemnity basis.
The Usual Order as to Costs
- [25]The applicant builder failed in its claim to recover the value of variations to the building contract. The respondent owners failed in their counterclaim against the builder seeking recovery of monies paid the builder in excess of the original contract amount and damages for costs of rectification of defective building work. The usual order in the circumstances should be that costs follow the event. Given neither party was successful and considering the burden of separate assessments of costs in circumstances where the issues raised at hearing were generally connected and arose out of the same fact circumstances,[8] the appropriate order is no order as to costs, each party to bear their own (rather than an order that the respondents have their costs of the claim and the applicant its costs of the counterclaim).
- [26]However both parties contend such order, the usual order, that costs follow the event, should not apply given the offers to settle.
The Legislation
- [27]Section 77(3)(g) of the Queensland Building and Construction Commission Act 1991 allows the Tribunal to award costs in building disputes.
- [28]Section 105 of the QCAT Act provides the Rules may authorise the Tribunal “to award costs in other circumstances, including for example, the payment of costs in a proceeding if an offer to settle the dispute the subject of the proceeding has been made but not accepted”.
- [29]By s 86 of the Queensland Civil and Administrative Tribunal Rules 2009:
86 Additional power to award costs if particular offers to settle rejected
- (1)This rule applies if—
- (a)a party to a proceeding, other than a proceeding for a minor civil dispute, makes another party to the proceeding a written offer to settle the dispute the subject of the proceeding; and
- (b)the other party does not accept the offer within the time the offer is open; and
- (c)in the opinion of the tribunal, the decision of the tribunal in the proceeding is not more favourable to the other party than the offer.
- (2)The tribunal may award the party who made the offer all reasonable costs incurred by that party in conducting the proceeding after the offer was made.
- (3)If a proceeding involves more than 2 parties, this rule applies only if the acceptance of the offer would have resulted in the settlement of the matters in dispute between all the parties.
- (4)In deciding whether a decision is or is not more favourable to a party than an offer, the tribunal must—
- (a)take into account any costs it would have awarded on the date the offer was given to the other party; and
- (b)disregard any interest or costs it awarded relating to any period after the date the offer was given to the other party.
- [30]Section 86 of the Rules creates an exception to the usual order as to costs by encouraging settlement and focusing attention on the conduct of a party who does not accept a reasonable offer to settle.[9] The power to award “all reasonable costs incurred by that party in conducting the proceeding after the offer was made” in s 86(2) has been held to encompass cost orders on an indemnity basis.[10] Indeed the expression “all reasonable costs incurred” in s 86(2) is essentially the same as the directive contained in the Uniform Civil Procedure Rules 1999 (UCPR) requiring assessors assessing costs on an indemnity basis to allow “all costs reasonably incurred”.[11]
- [31]The power to grant indemnity costs is still discretionary however, with the rider that the power be exercised “…judicially in accordance with established principle and factors directly connected with the litigation.”[12]
- [32]The making of an offer to settle in favour of an applicant who rejects the offer but who subsequently fails in his claim at hearing does not necessarily entitle the respondent making the offer to costs on an indemnity basis.[13] One must also determine whether the rejection of the offer was reasonable in the circumstances.[14]
- [33]What circumstances are to be considered? As stated by Applegarth J in Fick v Groves (No2) (footnotes omitted):[15]
I respectfully adopt what was said by the Victorian Court of Appeal in Hazeldene’s Chicken Farm Pty Ltd v Victorian Work Cover Authority (No. 2) that a court considering a submission that the rejection of a Calderbank offer was unreasonable should ordinarily have regard at least to the following matters:
(a) the stage of the proceeding at which the offer was received;
(b) the time allowed to the offeree to consider the offer;
(c) the extent of the compromise offered;
(d) the offeree’s prospects of success, assessed as at the date of the offer;
(e) the clarity with which the terms of the offer were expressed;
(f) whether the offer foreshadowed an application for an indemnity costs order in the event of the offeree’s rejecting it.
The unreasonable refusal of an offer of compromise is, by itself, a proper ground for the award of indemnity costs.
- [34]Calderbank offers have been accepted as relevant to the exercise of the discretion concerning costs provided for in section 86 of the Rules.[16] However whilst the aspects of reasonableness generally falling for consideration with Calderbank offers are relevant for consideration generally as to reasonableness, not all Calderbank offers fall within s 86 of the Rules.
- [35]A Calderbank offer may be oral.[17] An offer under Rule 86 however must be in writing. Further a Calderbank offer is generally labelled “Calderbank” and the phrase “without prejudice save as to costs” appended. There is no such requirement for s 86 to apply.
- [36]The Tribunal’s discretion granted under s 86 is somewhat akin to the formal offer provisions to be found in the UCPR Chapter 9 Part 5. But whereas the UCPR provides that costs of a proceeding are in the discretion of the court but follow the event unless the court orders otherwise,[18] that provision is not to be found in the QCAT Act. Rather there is s 102(1) of the QCAT Act which simply gives a power to make an order requiring a party to pay costs if the Tribunal considers the interests of justice require it. But that power is to large extent constrained by s 102(3) which specifies particular factors for consideration such as the conduct of a party disadvantaging another, the nature and complexity of the dispute, the relative strengths of the claims by each and the financial circumstances of the parties. Offers of settlement are not mentioned although there is a catch-all provision in s 102(3)(f) that the Tribunal may have regard to anything else considered relevant. It might be argued that Calderbank style offers of settlement not complying with s 86 offer requirements possibly fall for consideration under s 102(3)(f). The owners submit an award of costs might be made under s 102. I think it would be rare that non-compliant s 86 offers, labelled Calderbank or otherwise, would qualify for consideration under s 102(3)(f), though it should not be ruled out altogether. It will depend on the circumstances of the offer.
- [37]The oral offer of settlement made by the owners on 25 June 2014 did not qualify as an offer under s 86. Does it qualify for consideration under s 102(2)(f)? The offer was on the following terms. That within 14 days the builder deliver up all certificates in respect of the work carried out at the residence by the builder or its subcontractors; the builder deliver up certain minor chattels; deliver up written details of the “actual electrical wiring” installed with respect to a heated towel rail in the master bedroom. In return the owners pay the sum of $100,000 in full and final settlement of each party’s claims against the other in relation to the works of the builder or its subcontractors except for claims relating to defects not apparent to a reasonable property owner as at date of acceptance of the offer. To avoid doubt, it stated the claim concerning defects or incomplete work was that set out and marked “defects List” attached to an earlier letter dated 19 March 2014.
- [38]Was it unreasonable for the builder to refuse the offer? Proceedings had not commenced. It is unclear whether the claim of the owners to recover monies already paid to the builder in excess of the fixed contract amount was known to the builder at that time. If it was, it was not part of the offer of settlement. In the builder’s solicitors letter of 26 June 2014 (itself an offer of settlement but not more favourable than the outcome of hearing) the only claim of the owners referred to is an off-set for defects. In a letter of 9 July 2014 the owners state “For the avoidance of doubt, the Settlement Sum is in full and final settlement of our clients’ claim against your client in relation to the defects and/or incomplete work set out in the document marked “Defects List” attached to our letter dated 19 March 2014.” There is no mention that the settlement includes the subsequent counterclaim by the owners for recovery of monies already paid the builder for variations.
- [39]On that basis I conclude it was not unreasonable for the builder to refuse the offer made 9 July 2014 given the limited extent of the compromise proposed at that date and neither pleadings nor statements of evidence having been exchanged.
- [40]I turn then to the offer made by the owners on 6 November 2015. Proceedings had commenced on 7 August 2014. The offer was for payment by the owners to the builder of the sum of $30,000. The offer was open for acceptance for 21 days. The payment was in full and final settlement of each party’s claims against the other in respect of the works carried out by the builder except for claims in respect of defects not at that stage reasonably identified. Each party was to bear their own costs.
- [41]Was it reasonable for the builder to reject this offer? The offer was in writing and more favourable to the builder that the decision in the proceeding. If it had been accepted, both parties costs would have been much reduced and the builder would have been ahead to the extent of $30,000, not an insignificant sum. Pleadings were well advanced with an Amended Claim filed by the builder and Amended Response and Counterclaim filed and served between the parties some 8 months previous.
- [42]Acceptance would have resulted in the settlement of all matters in dispute between all parties. The time for acceptance of the offer was reasonable but the offer was rejected by the builder well before the end of the 21 days allowed. Indeed it was rejected on the eve of a compulsory conference, which was rather foolish. A reasonable approach to such an offer would have been to wait at least until after the conference, following which both parties would have been in a better position to understand the issues and prospects of success, to refuse the offer.
- [43]At the time of the offer, many of the statements of evidence ultimately relied on at hearing had been filed and exchanged. The builder must have known its claim was weak. The builder had failed to get variations signed or costs agreed before performing the work. The fixed price written agreement signed by the parties was also an obvious problem. Those problems must have been recognised by the builder prior to November 2015. Certainly there was never a claim by the builder for Tribunal approval for recovery of an amount for the variations under s 84(4) of the DBCA.
- [44]At all material times the builder had the benefit of informed legal advice. Prior to November 2015 the builder had to hand the statements of evidence of the owners and the architect alerting the builder to the challenge to the builder’s claim that the signed fixed price contract was not the true contract between them; disagreeing with the assertion that the owners had agreed to variations; and challenging the reasonableness of the builder’s costs claimed in performing the work. The builder’s progress claims were confusing and there was a disconnect between variations, the progress claims and supporting invoices. All those issues were clearly raised in the statements of evidence of the owners and the architect. Indeed the builder reduced its claim for the value of unpaid variations at hearing to $162,773.10, that is by approximately 50% from the initial figure claimed. That the initial claim was inflated and could not be substantiated should have been very clear to the builder by November 2015.
- [45]I conclude that as at the date of the offer of 6 November 2015 it was unreasonable for the builder to refuse the offer of settlement. By that date the builder should have understood that it had very limited prospects of success in its claim, and faced at minimum (leaving aside the claim for restitution) a substantial claim against it for defective building work which would be offset against any award for variations, if there be any award.
- [46]In these circumstances I conclude the offer made 6 November 2015 was an offer to which the discretion granted by s 86 of the Rules should be applied. Given that finding the subsequent offers to settle made by the builder in the period immediately before hearing become irrelevant. I should comment that by September 2016 the very substantial additional costs incurred by the owners after 6 November 2015 made the decision of the owners to proceed to hearing regardless that the parties were very close to settlement a reasonable one because the costs of the owners were very substantial by that stage and an order for costs in their favour an attractive commercial proposition.
- [47]Given those findings, what order is appropriate? I conclude what is appropriate that from the time of making the offer, which offer encompassed both claim and counter application, the owners should have their costs on an indemnity basis in respect of the proceedings.
- [48]The matter was complex and work done by the legal advisers extensive. The solicitor own client costs of the owners to date is suggested to be $293,484.41. I conclude it is not appropriate that I attempt to fix indemnity costs. The costs should be assessed by cost assessors. Given the claim by the builder was $350,345.02 until shortly before hearing, it is appropriate that the costs be assessed on the District Court scale.
Footnotes
[1] Davies v Nyland (1975) 10 SASR 76 at 89 per Wells J.
[2] [2001] 1 All ER 783.
[3] Ibid at 790 setting out an extract from the decision Muller v Linsley & Mortimer (a firm) [1996] PNLR 74 adopting statements made in Cutts v Head [1984] 1 All ER 597.
[4] Builder’s initial submissions dated 24 January 2017.
[5] Builder’s submissions in reply dated 31 January 2017.
[6] Owners’ initial submission dated 24 January 2017.
[7] Ibid at [8].
[8] Barescape Pty Ltd as trustee for the V’s Family Trust & Anor v Bacchus Holdings Pty Ltd as trustee for the Bacchus Holdings Trust & Anor (No.12) [2012] NSWSC 1591 at [6].
[9] Barescape Pty Ltd as trustee for the V’s Family Trust & Anor v Bacchus Holdings Pty Ltd as trustee for the Bacchus Holdings Trust & Anor (No.12) [2012] NSWSC 1591 at [15].
[10] Lyons v Dreamstarter Pty Ltd [2012] QCATA 071 at [24].
[11] Rule 703(3); and see Lyons v Dreamstarter Pty, ibid.
[12] Oshlack v Richmond River Council [1998] HCA 11 at [65] per McHugh J; 193 CLR 72; Lyons v Dreamstarter Pty Ltd [2011] QCATA 142 at [33] citing Latoudis v Casey (1990) 170 CLR 534 at 557.
[13] AKS Investments Pty Ltd & Anor v National Australia Bank & Anor (No2) [2012] QSC 282 at 11 per Applegarth J; State of Queensland v Hayes (No 2) [2013] QSC 80 at [11].
[14] Lyons v Dreamstarter Pty Ltd [2012] QCATA 071 at [25]; State of Queensland v Hayes (No 2), op cit at [11].
[15] [2010] QSC 182 at [32].
[16] Lyons v Dreamstarter Pty Ltd & Anor [2016] QCATA 43 at [37].
[17] Gilsan v Optus (No 4) [2005] NSWSC 1073; Giller v Procopets (No. 2) [2009] VSCA 72.
[18] R 681(1).