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[2017] NSWSC 1241

The Owners – Strata Plan 84741 v Nazero Constructions Pty Ltd

Plaintiff to have indemnity costs from 17 September 2015

Catchwords

COSTS – indemnity costs – offer of compromise – whether plaintiff obtained a result no less favourable than offer – whether component of agreed verdict should be seen as damages in the nature of interest – whether court should otherwise order for purpose of UCPR r 42.14

Cases cited

  • The Owners – Strata Plan 84741 v Nazero Constructions Pty Ltd[2017] NSWSC 1134
  • Walker v Harwood[2017] NSWCA 228

Legislation cited

  • Uniform Civil Procedure Rules 2005 (NSW)

Judgment

  1. [1]

    The background to this matter is set out in my judgment of 29 August 2017: The Owners – Strata Plan 84741 v Nazero Constructions Pty Ltd [2017] NSWSC 1134.

  2. [2]

    These reasons assume familiarity with that judgment. I will adopt the same expressions here as in that judgment.

  3. [3]

    In that judgment, I made findings concerning the quantification of the Owners Corporation’s otherwise undisputed claim against Iris concerning defects in the Clovelly building.

  4. [4]

    The parties have conferred and agreed on the arithmetical consequences of that judgment and agree that there should be a verdict and judgment for the Owners Corporation against Iris in the sum of $1,203,345.37.

  5. [5]

    The parties also agree that Iris should pay the Owners Corporation’s costs of the proceedings, including costs on an indemnity basis from 18 July 2017, together with interest on those costs.

  6. [6]

    The only matter now dividing the parties is whether the Owners Corporation should have its costs on an indemnity basis from an earlier date, 17 September 2015, by reason of the fact that, on that date, the Owners Corporation served on Iris an Offer of Compromise pursuant to r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) offering to compromise its claim against Iris by accepting a payment from Iris of $1,200,000.

  7. [7]

    As I recorded at [38], at the hearing before me, the Owners Corporation’s claim for the reasonable cost of rectifying the admitted defects in the building was $1,173,909.

  8. [8]

    I heard evidence from quantity surveyors retained by the parties; Mr Zakos for the Owners Corporation, and Mr Madden for Iris.

  9. [9]

    In my judgment I recorded that:

  10. [10]

    The agreement to which I referred at [42] arose from the following exchange that I had with Mr Cheney SC, who appeared with Mr Chiu for the Owners Corporation:

  11. [11]

    Thus, the Owners Corporation agreed that, in lieu of pursuing a claim for interest, the approach that I recorded in the judgment should be followed.

  12. [12]

    The agreed verdict amount ($1,203,345.37) comprises the now agreed quantum of the cost (at the Rawlinsons 31 December 2014 rates) of rectifying the defects in accordance with my reasons ($1,062,075.14), together with an allowance of 5% on that figure ($145.49 per day) to reflect the likely increase in those costs since 31 December 2014.

  13. [13]

    Mr McGrath SC, who appeared for Iris, submitted that in the events that have happened, the 5% allowance should be seen as “damages in the nature of interest” and thus a component of the proposed verdict that, by reason of UCPR r 42.16, should be disregarded for the purpose of assessing whether the Owners Corporation will, upon entry of judgment, obtain a result “no less favourable” than the offer for the purposes of UCPR r 42.14(1).

  14. [14]

    On reflection, I do not accept this submission.

  15. [15]

    Although the 5% allowance represents the component of the proposed judgment that, as the case was presented, will be in lieu of the Owners Corporation’s previously maintained claim for interest, in substance it represents part of the costs that the Owners Corporation will actually incur in rectifying the defects in the building. Thus, in substance, it is part of the Owners Corporation’s damage.

  16. [16]

    Although the 5% allowance was, as Mr McGrath submitted, “taken in direct replacement of an award of interest” it is not, in my opinion, thereby “in the nature of interest”.

  17. [17]

    In my opinion the matter is properly characterised in the following passage from the submissions of Mr Cheney as follows:

  18. [18]

    Once judgment is entered, the Owners Corporation will have obtained a result “no less favourable”, for the purpose of UCPR r 42.14(1), than the subject of its offer.

  19. [19]

    Accordingly, unless I “otherwise order” under UCPR r 42.14(2), the Owners Corporation is entitled to indemnity costs from the date of the offer.

  20. [20]

    Mr Cheney drew my attention to the very recent observations of Basten JA (with whom Payne JA agreed) in Walker v Harwood [2017] NSWCA 228 that:

    1. (1)

      despite earlier judicial misgivings, “there would seem to be no harm in describing” what must be established to “otherwise order” as being “exceptional circumstances” (at [17]);

    2. (2)

      following an offer of compromise “the event” referred to in UCPR r 42.1 is redefined, by r 42.14 “as whether or not the offeror obtains a better result than that proposed in the offer” (at [19]); and

    3. (3)

      the objects of the rules concerning offers of compromise are best achieved “by maintaining a tight leash on the circumstances in which the court should otherwise order, thereby promoting certainty in the operation of the provisions relating to offers of compromise and discouraging offerees from seeking to ‘game the system’” (at [22]).

  21. [21]

    In the circumstances of this case, the only basis upon which I could see that I could “otherwise order” is the fact that the proposed judgment is only very slightly more than the amount of the offer.

  22. [22]

    Neither counsel drew to my attention any case where such a circumstance has been found to be one in which the court should “otherwise order” for these purposes.

  23. [23]

    In those circumstances, and as the fact remains that the judgment that the Owners Corporation will obtain will be “no less favourable” than its offer, and in light of the recent guidance given by the Court of Appeal on the subject, I am not persuaded that I should otherwise order.

  24. [24]

    It follows that the Owners Corporation should have its costs on an indemnity basis from 17 September 2015.

  25. [25]

    As the parties otherwise agree on the judgment and orders that should be made to conclude these proceedings I make the following orders:

    1. (1)

      Verdict and judgment for the plaintiff against the second defendant in the amount of $1,203,345.37.

    2. (2)

      The second defendant is to pay the plaintiff’s costs of the proceedings on an ordinary basis up to 16 September 2015 and on an indemnity basis from 17 September 2015.

    3. (3)

      The second defendant is to pay the plaintiff interest on the plaintiff’s costs and disbursements as agreed or assessed:

Unofficial copy. Source: NSW Caselaw. Refer to the official version for authoritative text.