Hestbay Pty Ltd v One Sector Pty Ltd

This costs dispute arose following the discontinuance of a third-party proceeding. In the primary dispute, the defendant was contracted by the plaintiff under a design and build contract. The plaintiff alleged that concrete laid by the defendant did not meet the contractual requirements. The defendant issued a third-party notice to the supplier of the concrete, but ultimately sought leave to discontinue. His Honour reserved the decision on costs of the third-party proceedings to the trial judge, but in doing so, noted that there is no usual rule that a party discontinuing proceedings with leave under r 307(2) UCPR should be ordered to pay costs.

Freeburn J

14 July 2023

The plaintiff is the owner of industrial land in Molendinar. [3]. In 2015, the plaintiff contracted the defendant to design and construct a building on the land. [3]. The plaintiff alleges that the contract contained specifications that required internal concrete slabs constructed by the defendant to have a certain thickness and strength. [4]–[6]. The plaintiff instituted proceedings alleging inter alia a breach of these obligations. [5]. The defendant issued a third-party statement of claim against the supplier of the concrete in which it made similar assertions in respect of the concrete to those set out in the plaintiff’s statement of claim. [10].

However, in correspondence with the third party, the defendant noted that it did “not necessarily accept the results of the testing or the accuracy of the reports and we are carrying out further investigations as to the Principal’s allegations.” [12]. Further expert evidence was obtained, and subsequently, the defendant sought and obtained leave to discontinue the proceedings against the third defendant under r 304 Uniform Civil Procedure Rules 1999 (“UCPR”). [30]. The third party sought costs against the defendant. [1].

Under r 307(2) UCPR, if “a party discontinues or withdraws with the Court’s leave, the Court may make the order for costs it considers appropriate”. [28]. The parties approached the application on the basis that the usual order was that the discontinuing party would be required to pay costs. [24]–[26]. However, His Honour held that there is no usual order. [27]. Rule 307(2) imposes no presumption or fetters on the Court’s discretion as to costs. [29]. A variety of circumstances may be relevant to determining costs following discontinuance with leave. These may include the conduct of the third party, whether the defendant has acted reasonably in joining the third party, the degree of connection between the plaintiff’s claim and the third party’s claim, and the reasons for discontinuance. [36]–[37]. It may also be relevant to consider how costs may be resolved following determination of the dispute between the plaintiff and the defendant. [37(f)].

His Honour held that many of these factors could not be assessed while the matter was ongoing between the plaintiff and defendant. The third party argued that the defendant’s choice to discontinue the claim indicated a capitulation. [44]. However, His Honour was unwilling to give the discontinuance that characterisation in circumstances where the defendant continued to assert that aspects of the third party’s defence were untenable. [44]. In addition, the defendant asserted that the plaintiff had effectively abandoned its claims concerning the strength of the concrete in light of new expert evidence, but that had not yet been reflected in the pleadings. [46]. The strength of the parties’ factual contentions were relevant to a determination on costs, and would only become clear following the trial of the matter which was listed in October 2023. [50]. As such, His Honour reserved the costs of the third party proceeding, to be determined by the trial judge. [56].

L Inglis