Federal Court of Australia

Janbar Pty Ltd v Arborcrest Pty Ltd (No 2) [2020] FCA 1684

ORDERS

THE COURT ORDERS THAT:

1.    There be judgment for the Applicants on the claim against the First Respondent in the sum of $163,149.78.

2.    The claim of the Applicants against the Second Respondent be dismissed with no order as to costs.

3.    The cross-claim of the First Respondent be dismissed with no order as to costs.

4.    The First Respondent pay 40% of the Applicants’ overall costs of action on party/party basis.

5.    In the absence of agreement by the parties as to the amount of costs, the Applicants’ costs be assessed on a lump sum basis.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

WHITE J:

1    On 21 October 2020, I delivered judgment on the applicants’ claim that building work carried out by the first respondent (Arborcrest) had not been of adequate quality: Janbar Pty Ltd v Arborcrest Pty Ltd [2020] FCA 1519 (the Primary Judgment). I upheld the applicants’ claim of breach of contract based on Arborcrest’s failure to comply with the warranty as to fitness for purpose implied into their contract by s 32(2)(f) of the Building Work Contractors Act 1995 (SA) (the BWC Act).

2    After a deduction of 50% for contributory negligence pursuant to s 7 of the Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) (the Law Reform Act) (by reason that Arborcrest’s liability in damages arose under the BWC Act), I assessed the applicants’ damages at $143,149.78. This amount comprised the following components (after reduction for the applicants’ contributory negligence):

3    Each of the applicants’ other claims, being their remaining claims of breach of contract, their claims of negligence and negligent misstatement, their claims of misleading or deceptive conduct, including the claim of misleading or deceptive conduct by Mr Parisi, the second respondent, and their claims for loss of rental income were dismissed. I took Arborcrest’s cross-claim to have been abandoned (Primary Judgment at [9]).

4    I directed the parties to confer with the view to reaching agreement on the issues of interest, costs and the appropriate form of orders to give effect to my reasons. In the event that the parties were unable to reach agreement about those matters, each was to file and serve minutes of the orders proposed and an outline of submissions in support. I indicated that, unless the parties stated a wish to be heard orally with respect to these matters, the Court would determine the remaining issues on the papers.

5    Although the parties reached agreement about some matters, there is a significant difference between their respective positions concerning costs.

6    Neither party indicated a wish to be heard orally with respect to these matters.

7    This judgment concerns the issues of interest and costs. It is to be read in conjunction with the Primary Judgment and the abbreviations used in those reasons are also used in this judgment.

Interest

8    The applicants sought a total of $20,922.50 for interest calculated to 21 October 2020. Arborcrest proposed instead a total of $20,389.90 calculated to 20 November 2020.

9    Apart from the one month difference in the period for which the parties made their respective calculations, the difference in their calculations resulted from disagreement as to the commencement date for the calculation of the interest on the amount allowed for the replacement of the highlight windows. The applicants claimed interest from 1 December 2017, on the basis that this was the date on which they had accepted KRI’s quotation of $15,014 plus GST for the replacement of those windows. However, interest on this item should not commence to run until the applicants actually outlaid the money.

10    Although the evidence did not indicate the time of the applicants’ expenditure of the sum of $15,014 plus GST, I accept Arborcrest’s submission that it may be inferred that the applicants did not actually expend the monies for another 12 months as it was only at that time that the applicants had the work to which the quotation referred carried out. On this basis, Arborcrest submitted that the interest on this component should run from 1 November 2018.

11    I agree and will allow interest broadly in accordance with Arborcrest’s calculation.

12    Arborcrest did not contend that the amount of interest to which the applicants be entitled on the other components should be reduced by reason that they did not commence the proceedings until 22 June 2018, that is, well after their cause of action had arisen, or by reason of delays in the prosecution of the proceedings attributable to the applicants. If it had, it would have been necessary to take into account the respondents’ own conduct both pre-trial and during the trial which contributed to delays in the litigation. I commented more than once during the trial on the inefficient way in which the parties were conducting the litigation. Moreover, the manner in which the parties, but in particular the respondents, presented their final submissions was not helpful and made the Court’s task of preparing the judgment much more difficult than it should have been. This meant that the time taken to deliver judgment was longer than would otherwise have been necessary. I warned the parties during the final submissions that this would be the consequence of the manner in which they had chosen to present the final submissions. In doing so, I had in mind, amongst other things, the potential for this to impact on the issue of interest.

13    Although Arborcrest did not raise these matters in relation to the applicants’ entitlement to interest, I consider it appropriate that some account be taken of them. Arborcrest’s attitude suggests that the reduction should be modest. Accordingly, I allow interest in the lump sum figure of $20,000.

Costs

14    The applicants seek an order that Arborcrest pay, on a party/party basis, both the costs of their application and the costs of its cross-claim.

15    The respondents contend for orders as follows:

(a)    the applicants pay Mr Parisi’s costs of the action against him; and

(b)    there be no order as to costs between the applicants and Arborcrest or, alternatively, the applicants have a percentage of their costs fixed by the Court.

General principles

16    The power which the Court exercises with respect to costs is that granted by s 43 of the Federal Court of Australia Act 1976 (Cth) (the FCA Act).

17    It is well established that, while s 43 vests a wide discretion in the Court with respect to costs, it is a discretion which must be exercised judicially. A common starting point is the statement of principles by Toohey J in Hughes v Western Australia Cricket Association (Inc) (1986) 8 ATPR 40-748 at 48,136:

1.    Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order …

2.    Where a litigant had succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed …

3.    A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party’s costs of them. In this sense, “issue” does not mean a precise issue in the technical pleading sense that any disputed question of fact or of law …

18    It is also established that costs are compensatory in nature and not punitive.

19    A number of matter of principle bearing upon the apportionment of costs when an applicant is only partially successful were reviewed in Hockey v Fairfax Media Publications Pty Ltd (No 2) [2015] FCA 750; (2015) 237 FCR 127 at [84]-[91]. I refer to, and adopt, what was said there without repeating it in these reasons.

20    The application of the first of the principles stated by Toohey J suggests that the applicants, as the successful litigants, should receive an order for costs in their favour. The respondents invoke the same principle and submit that, as Mr Parisi had successfully defended the claim brought against him personally, he should recover his costs on that claim. They also point to a number of other features of the applicants’ conduct which, they contend, make it appropriate that there be no order with respect to the costs of the applicants’ claim or, alternatively, that the applicants receive only a portion of their costs.

The respondents’ submissions

21    It is convenient first to identify the matters on which the respondents relied.

22    The respondents referred first to the provisions in the FCA Act concerning the overarching purpose of the civil practice and procedure provisions. They emphasised that the overarching purpose of these provisions is “to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible” (s 37M(1)); that that purpose includes “the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute” (s 37M(2)(e)); that parties to a civil proceeding before the Court are required to conduct the proceeding (including negotiations for a settlement of the dispute to which the proceeding relates) in a way which is consistent with the overarching purpose (s 37N(1)); and that, in exercising the discretion to award costs in a civil proceeding, the Court must take account of any failure by a party to comply with the obligation imposed by subs (1) and (2) (s 37N(4)) (emphasis added).

23    Secondly, the respondents emphasised that:

(a)    the applicants’ claim against Mr Parisi had wholly failed;

(b)    the applicants’ claims based on alleged misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law, negligence and negligent mis-statement had wholly failed;

(c)    the applicants had established only one of their claims of breach of contract, this being the failure of Arborcrest to comply with the warranty as to fitness for purpose implied by s 32(2)(f) of the BWC Act. In particular, they had failed to establish a breach of the warranty implied by s 32(2)(c) of the BWC Act (compliance with statutory requirements) even though this had been prominent in the case they had presented at trial. Further, the applicants’ claims that Arborcrest had breached express oral terms and implied terms in its contract with the applicants were either not pursued at trial or were wholly unsuccessful; and

(d)    on the sole claim on which the applicants did succeed, the damages to which they were found entitled were substantially less than those which they had claimed. This was so both because of the applicants’ contributory negligence and because the damages allowed on that claim were, in several instances, either disallowed or reduced.

24    In relation to the last of these matters, the respondents adduced evidence of the applicants’ quantification of their claims before the commencement of the proceedings. In a letter of claim served on 23 August 2017 purportedly in compliance with the pre-action protocols required under the Rules of the District Court of South Australia, the applicants formulated their claims as follows:

25    In the Statement of Claim filed in this Court on 17 June 2018 and maintained in the Amended Statement of Claim filed on 22 August 2018 (the ASC), the applicants claimed damages as follows:

26    In addition, the applicants had claimed loss of rental income in the period from September 2015 until July 2017 and continuing. The aggregate amount claimed was not quantified in the ASC but a loss of $14,000 per week during periods of peak demand was pleaded. The applicants’ pre-action formulation suggested that, by the time of trial, they were seeking over $1 million for loss of rental income. Thus, it seemed that the applicants were claiming damages of at least $1.5 million.

27    Contrary to the respondents’ submission, I have not included in this second table the amount of $257,762, being the claim for refund of monies paid by the applicants to Arborcrest. It is true that the applicants’ ASC does include a claim for this amount but it prefaced with the words “further, or in the alternative, as determined by the Court”. In my view, both that expression, and an understanding of the principles on which damages in the present context are assessed, indicate that the applicants were proposing this claim as an alternative method for the assessment of their damages, and not as an additional item of damages.

28    The respondents contrasted the claim of approximately $1.5 million with the sum of $143,149.78 (before interest) to which the applicants have been found entitled. That contrast indicated, they submitted, that it should not be concluded that the applicants had been the successful parties in the litigation.

29    Next, the respondents contended that the applicants’ approach to a possible settlement of the action had been unreasonable and had made the 10 day trial unavoidable. They noted that the only pre-action offer of settlement made by the applicants was based on the formulation of its total claim at $1,697,589.74 and required Arborcrest to pay damages of $1.5 million. The respondents also noted that this formulation of the applicants’ claim included an amount of $936,000 for loss of rental income at $18,000 per week from September 2016 and continuing as well as a complete refund of the monies which the applicants had paid to Arborcrest in addition to the entire costs of remediation.

30    A mediation between the parties in November 2018 was unsuccessful.

31    The applicants’ next offer of settlement occurred on 22 January 2019 when they offered to compromise the action on payment to them of the sum of $1 million in addition to their costs. Again, the respondents contrasted this offer with the applicants’ entitlement as found in the Primary Judgment.

32    I note that the respondents had on 22 January 2019 served an offer to compromise the action by paying to the applicants $40,000 in addition to costs of $10,000. This was well less than their assessed liability.

33    Next, the respondents noted that the applicants’ solicitor had on 22 January 2019 rebuffed the suggestion that Mr Parisi speak to Mr Ahlburg personally with a view, it seems, to exploring informally the prospects of a settlement. The applicants’ solicitor did so by saying “given the offers [exchanged between the parties that same day] are so far apart there seems no point in my client speaking with your client direct”.

34    Next, the respondents submitted that the applicants had failed to comply fully with the pre-action protocol applicable to foreshadowed proceedings in the District Court of South Australia. However, that is a matter of limited relevance to proceedings in this Court. The respondents’ submission could possibly have been understood as one that the applicants had not made any genuine steps to resolve their dispute with Arborcrest in the manner contemplated by the Civil Dispute Resolution Act 2011 (Cth). This assertion had been made in the respondents’ Genuine Steps Statement filed on 17 July 2018. The assertion then was that the applicants had not supplied the particularity for their claim required by r 17 of the Supplementary Rules of the District Court and had not communicated with the respondents between October 2017 and the commencement of proceedings on 17 June 2018. However, the respondents’ costs submissions made no reference to the Civil Dispute Resolution Act and, in particular, to s 12 of that Act which permits the Court, when exercising the discretion to award costs, to take account of whether a party did take genuine steps to resolve the dispute. Moreover, the respondents did not refer to any of the authorities concerning the application of s 12 and its statutory analogues. Their submission was only that, by unrealistic formulations of their claims and unrealistic proposals for settlement, the applicants had left them with no alternative but to defend the proceedings.

The applicants’ submissions

35    The applicants’ submissions were made largely by reference to passages in the Law of Costs, Dal Pont, LexisNexis, 4th edition. They emphasised that costs are compensatory and the statement of the plurality in De L v Director-General, NSW Department of Community Services (No 2) [1997] HCA 14; (1997) 190 CLR 207 at 221 that the power of the Court to order the unsuccessful party to pay the costs of the successful party allows it to “protect a successful party against the substantial burden of costs which could otherwise render its success nugatory”. The applicants further emphasised a number of well-known propositions, including:

    unsuccessful parties do not ordinarily avoid liability for costs merely because they nearly succeeded, acted reasonably in the proceedings, or failed through no fault of their own;

    a court is not obliged to consider that a successful party’s lack of success on some issues should be reflected in a costs order;

    if a party who is ultimately successful did not act improperly or unreasonably in raising issues or allegations on which it failed, he or she should not ordinarily be required to pay the unsuccessful party’s costs with respect to those issues or allegations;

    an applicant who relies on different legal rules or different causes of action in pursuit of recovery of a single outcome should not ordinarily have its entitlement to costs qualified by reference to issues on which his or her case was not successful. The applicants referred in this respect to Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174 in which the Full Court said at [8]:

… The mere fact that a court does not accept all of a successful party’s arguments does not make it appropriate to deal with costs on an issue by issue basis …

    an ultimately successful party is more likely to be ordered to pay costs on issues on which it failed if those issues were improperly or unreasonably raised or if the successful party’s conduct of the case unnecessarily increased the costs incurred by the unsuccessful party;

    in approaching the question of possible apportionment of costs, courts take into account the prospect that litigants may be discouraged from canvassing all material issues; and

    the difficulty in revisiting the litigated issues and tallying the “wins and losses”, the undesirability of courts having to hear lengthy arguments about costs, and the Court’s approach to the matter with a “broad brush”.

36    In relation to the application of these principles in the present case, the applicants submitted:

(a)    they had succeeded on the dominant issues of fact and law which were litigated and which took up most of the trial time;

(b)    the issues upon which they had not succeeded were not significantly discrete or separable from those on which they did succeed;

(c)    the respondents had been jointly represented;

(d)    this is a case in which all the witnesses who did give evidence would have been called anyway;

(e)    the additional time in the trial involved in the respondents’ defence of the misleading or deceptive conduct claims was relatively small;

(f)    the respondents’ cross-claim failed as did their contention that there should be some form of third party apportionment; and

(g)    the respondents had failed on a number of factual issues.

Consideration

37    A number of matters are, to my mind, influential in the exercise of the Court’s discretion with respect to costs.

38    The first is that the applicants’ claims of misleading or deceptive conduct against Mr Parisi wholly failed. There were a number of difficulties in the applicants’ pleading and presentation of the claim of misleading or deceptive conduct to which I referred at [472]-[487] in the Primary Judgment. Ultimately, the claims failed because of a concession made by the applicants themselves about what they had been told in the pre-contractual meetings which indicated that the alleged misleading or deceptive conduct they alleged had not occurred.

39    Much of the evidence which was adduced at the trial concerning the pre-contractual discussions would not have been necessary had the applicants not made their claims of misleading or deceptive conduct. It is true that some of that evidence would still have been necessary because of the applicants’ claims concerning express oral terms and implied terms. However, that consideration does not avail the applicants presently because they also failed wholly on those claims. On my assessment, the time taken at the trial would have been shortened by up to one day had the applicants not pursued these claims. Moreover, it would not have been necessary for Mr Parisi to have been a party to the proceeding. I accept, however that the significance to be attached to this circumstance is diminished by the fact that Mr Parisi is the human alter ego of Arborcrest, and each of he and Arborcrest had common representation in the trial.

40    Secondly, although I am troubled by the apparent failure of the applicants to make sensible settlement offers having regard to ss 37N(1) and (4) of the FCA Act, I do not consider that this should be reflected in a significant way in the costs discretion. In the first place, as already noted, the respondents did not seek to develop any submission by reference to s 12 of the Civil Dispute Resolution Act.

41    In the second place, the respondents’ own offer of settlement of $40,000 plus $10,000 for costs can be seen to be quite modest and, like that of the applicants, appears to have been unrealistic in the light of the applicants’ then foreshadowed evidence.

42    In the third place, it is difficult for the Court to make an assessment of what the position may have been had the applicants’ approach to settlement been more realistic and flexible. As was observed by Mansfield J in Australian Competition and Consumer Commission v Harris Scarfe Australia Pty Ltd (No 2) [2009] FCA 433 at [33]:

… . It will obviously be very difficult for a court to know whether negotiations which ought reasonably to have been undertaken would have come to fruition, and if so whether the outcome would have been more or less favourable than the judicial determination. Moreover, that might require a further hearing, perhaps even a protracted hearing, to resolve such issues …

43    In this case, while it may be inferred from Mr Parisi’s proposal that he speak to Mr Ahlburg personally that he was willing to increase the respondents’ settlement offer, there is no indication of the possible extent of any such increase. Even had the offer been increased, it may still have been well less than the damages to which the applicants have been found entitled.

44    In the fourth place, if the respondents did regard the applicants’ attitude towards settlement as being unrealistic and intransigent, it was open to them to have protected their position on costs by making a realistic Rules of Court offer pursuant to r 25 of the Federal Court Rules 2011 (Cth), and they did not do so.

45    Returning to the particular matters which inform the exercise of the discretion in this case, I do consider it appropriate to take the manner in which the parties conducted the litigation into account. Sadly, there were aspects of the trial which were not conducted with the efficiency which one would expect. The acknowledgement by the respondents’ counsel that the pre-trial preparation of tender books had been a failure and his production mid-trial of a further three lever arch volumes of documents is but one example. In an assessment of the reduction of any costs to which the applicants would otherwise be entitled, account should be taken of the several occasions when the respondents’ manner of the conduct of the trial contributed to its prolongation. Nevertheless, I will take account of the instances in which the applicants’ conduct of the trial contributed to its prolongation.

46    Fourthly, while I accept that the applicants are correct in submitting that the failure of successful litigants on some of the causes of action by which they sought to recover the same losses may not always be material, it is the case that the present applicants failed on numerous factual issues in the trial. These include the content of the pre-contractual discussions, the issues concerning the installation of strip drains, the issue of contributory negligence, the basis upon which Arborcrest agreed to replace the Hafele doors with the Alspec doors, the claimed breach of the statutory warranty concerning compliance with statutory requirements (s 32(2)(c) of the BWC Act) which occupied a large part of the applicants’ final submissions, the absence of flashings, the claim for replacement of the Alspec windows and the loss of rent claim.

47    In the circumstances of this case, I do consider that it is appropriate to take account of the fact that the applicants chose to pursue at trial numerous factual and other issues upon which they failed. The trial would have been appreciably shorter had the applicants not pursued these issues or faced up, in a realistic manner, to the difficulties in these aspects of their claims.

48    Fifthly, I do consider it appropriate in this case to consider the success and failure in the case by reference to considerations which go beyond the mere fact that the applicants have succeeded in obtaining a judgment in their favour. There is some force in the respondents’ submission that, while the applicants have obtained that judgment, they fell a long way short of recovering damages of the dimension which they claimed. In particular, their claim for loss of rental income failed altogether and they recovered only about one-fifth of the amount which they claimed for the future replacement of the Alspec windows (even before the reduction for contributory negligence). They failed in resisting the defence of contributory negligence. This is a case in which, realistically, the applicants’ success was only partial. Even if their pleaded claim was only for an amount in the order of $1 million, they succeeded in obtaining a judgment for only about 15% of that amount.

49    Sixthly, I proceed on the basis that an important consideration in the making of costs orders is that, in addition to doing justice between the parties, they should be in a form which will enable their ready quantification. The Court should attempt to avoid, so far as possible, creating a situation in which the quantification of costs will be complex, protracted and, by itself, costly: Hockey v Fairfax Media at [120]. Effect can be given to that objective by making an order that the applicants recover only a portion of their overall costs. In the making of such an apportionment, I do not consider it appropriate to distinguish between the positions of Arborcrest and Mr Parisi. They had common representation in the trial and, as noted, Mr Parisi is in many respects the alter ego of Arbrocrest. It would be very difficult for a taxing Registrar to isolate the costs attributable to the claim against Mr Parisi personally from those brought against Arborcrest.

50    While some estimates can be made of the time taken in the trial on some of the issues on which the applicants failed, that is not so in respect of all, and in particular the issue of contributory negligence. Accordingly, it is not possible to assess the applicants’ costs entitlement arithmetically or with some other form of precision. In my opinion, justice will be done if Arborcrest is required to pay 40% of the applicants’ party/party costs, with there being no order with respect to the costs of the applicants’ claim against Mr Parisi personally and no order for costs on Arborcrest’s cross-claim. In the absence of agreement, the costs are to be assessed on a lump sum basis.

Summary

51    For the reasons given in the Primary Judgment and stated above, I will make the following orders:

(1)    There be judgment for the Applicants on the claim against the First Respondent in the sum of $163,149.78.

(2)    The claim of the Applicants against the Second Respondent be dismissed with no order as to costs.

(3)    The cross-claim of the First Respondent be dismissed with no order as to costs.

(4)    The First Respondent pay 40% of the Applicants’ overall costs of action on party/party basis.

(5)    In the absence of agreement by the parties as to the amount of costs, the Applicants’ costs be assessed on a lump sum basis.

Associate:

Dated:    23 November 2020