Rialto Sports Pty Limited (Admins Apptd) v Cancer Care Associates Pty Limited; CCA Estates Pty Limited; Davjul Holdings Pty Limited; Armmam Pty Limited (No 3)

1. [1]

   BELL CJ: I agree with the reasons given by Gleeson JA and the orders his Honour proposes.

2. [2]

   GLEESON JA: Judgment in four related appeals was given on 10 August 2022: Rialto Sports Pty Limited v Cancer Care Associates Pty Limited; CCA Estates Pty Limited; Davjul Holdings Pty Limited; Armmam Pty Limited [2022] NSWCA 146 (the principal judgment). The Court (i) allowed the appeals by Rialto Sports Pty Limited (Rialto) in part, (ii) set aside the four judgments in favour of the respondents (the lot owners) given in separate proceedings in the District Court on 9 December 2021, and (iii) in lieu, referred to a referee six questions for inquiry and report under Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 20.14.

Background

1. [3]

   Rialto was the owner/developer of a six-storey commercial strata building at Miranda consisting of 27 lots known as “The Kingsway”. It engaged a builder which company later went into liquidation after the building was completed and a final occupation certificate granted in October 2014.

2. [4]

   The four lot owners – Cancer Care Associates Pty Ltd (Cancer Care) (Lots 12, 25), CCA Estates Pty Ltd (CCA) as assignee of SRProp Investments No 1 Pty Ltd (SRProp) (Lot 1), Davjul Holdings Pty Ltd (Davjul) (Lot 18) and Armmam Pty Ltd (Armamm) (Lots 7, 8 9 and 10) – collectively own 8 of the 27 lots representing 49.01 per cent of the total unit entitlements.

3. [5]

   The contracts for sale with SRProp, Cancer Care and Davjul were contracts “off the plan” which contained special conditions including a warranty as to good workmanship “in accordance with plans and specifications approved by Sutherland Council” (Cancer Care contract), and “in accordance with the Development Consent” (SRProp contract and Davjul contract). Relevantly, the development consent, and plans and specifications, incorporated an obligation to comply with the Building Code of Australia (BCA) or the applicable Australian Standards.

4. [6]

   The contract for sale with Armmam Pty Ltd (Lots 7-10) was entered into after registration of the strata plan. Special condition 15 provided for 10 specific items of work to be undertaken to the lots by Rialto and its builder prior to completion “in a proper and workmanlike manner”. The terms of this special condition are set out at [29] below.

5. [7]

   In the District Court proceedings the lot owners claimed damages against Rialto arising from various alleged breaches of their respective contracts for sale with Rialto, being their share of the cost to rectify defects to the common property, principally relating to the use of combustible aluminium cladding on the northern and southern façades and defective waterproofing on the southern façade, and miscellaneous common property defects listed in a Scott Schedule. Armmam also sought damages for specific defects to its individual lots.

6. [8]

   The ground on which this Court allowed the appeals in part was a concession by the lot owners that the trial judge’s reasons were inadequate and failed to address key issues. This Court went on to address other issues. Of present relevance, the Court held that on the proper construction of the special conditions in the SR Prop, Cancer Care and Duvjal contracts, Rialto remained liable to each of CCA (as assignee of SR Prop), Cancer Care and Duvjal respectively under its warranty of good workmanship for work done by the builder to whom it subcontracted the work, and this obligation did not merge on completion of the contracts.

7. [9]

   The Court also held that the lot owners had standing to sue Rialto and can recover the cost of rectification irrespective of whether the remedial works have not yet been undertaken by the owner’s corporation or the lot owners could not otherwise undertake the works to the common property themselves. It is not necessary for present purposes to refer to the other issues dealt with by the Court.

The reference

1. [10]

   The parties agreed that Ms Janet Grey be appointed as the referee; that appointment was made on 30 September 2022. On 10 February 2023, the Court made orders by consent adding two additional questions to reference. On 17 April 2023, the referee submitted her report to the Court. The report is 127 pages in length. The questions answered in the report can be grouped as follows:

   1. (1)

      Questions 1, 4 and 6(a) concern defective waterproofing on the southern façade of the building, the appropriate rectification method, whether the construction of the southern façade was in breach of Rialto’s obligations to each of the lot owners, and the cost of rectification.

   2. (2)

      Questions 2, 3 and 6(b) concern defective cladding on the northern and southern façades, whether the cladding complied with the Building Code of Australia, whether the installation of the cladding was in breach of Rialto’s obligations to each of the lot owners, and the replacement cost of the cladding.

   3. (3)

      Questions 5 and 6(c) concern specific defects to Armmam’s individual lots.

   4. (4)

      Questions 7 and 8 concern miscellaneous defects in the Scott Schedule annexed to a report of Mr Madden dated 6 November 2020 and the cost of rectification.

2. [11]

   It is convenient at this point to set out the summary of the referee’s answers to the eight questions at [414]-[443] of the report:

The lot owners’ motions

1. [12]

   On 15 May 2023, the lot owners each filed a motion in the respective appeals seeking orders that (i) the whole of the report be adopted pursuant to UCPR, r 20.24 (order 1), (ii) judgment be entered for the lot owners in specified amounts (order 2), (iii) a special costs order be made in relation to the District Court proceedings and in this Court (orders 3 and 4), (iv) interest on costs and disbursements on appeal and the proceedings below (order 5), and (v) such further or other orders as the Court sees fit (order 6).

2. [13]

   Specifically, the lot owners sought judgments in the following amounts, including pre-judgment interest up to 15 May 2023 on the amounts representing the levy contributions paid by three lot owners (Cancer Care, CCA and Davjul) with respect to the special levy by the owners’ corporation to fund the removal and replacement of the cladding on the building:

3. [14]

   Written submissions on the motions were directed and received in July 2023. Rialto opposed the adoption of the report and the other relief sought by the lot owners. Further written submissions were directed on 31 August 2023 in relation to whether the miscellaneous defects in the Scott Schedule constituted a breach by Rialto of its obligations under the contracts with the lot owners, being an issue outside the scope of the reference. Those submissions were received from the lot owners, but not Rialto.

4. [15]

   On 2 October 2023, Rialto was placed in administration by resolution of the company’s sole director. On 16 October 2023, leave was granted to the respondent lot owners in each appeal under s 440D of the Corporations Act 2001 (Cth) to proceed with the respective notices of motion filed 15 May 2023 against Rialto on condition that the respondent not take any steps to enforce any judgment that may be obtained in respect of appeals against Rialto without leave of the Court: Rialto Sports Pty Ltd v Cancer Care Associates Pty Ltd; CCA Estates Pty Ltd; Davjul Holdings Pty Ltd; Armmam Pty Ltd (No 2) [2023] NSWCA 246.

5. [16]

   Shortly prior to the hearing of the present motions, senior counsel for Rialto informed the Court and other parties by email that the issues in dispute had narrowed significantly. Relevantly, the only matters in dispute were:

6. [17]

   It is convenient to address the issues raised by the lot owners’ applications in the following order: (1) the unopposed orders in the motions of Cancer Care, CCA and Davjul, (2) the opposed orders in the motion of Armman, (3) interest on costs and disbursements, and (4) the costs orders in the District Court and this Court.

7. [18]

   One preliminary matter should be noted. Since the hearing of the appeal, Macfarlan JA has retired from the Court. The parties consented to the notices of motion being dealt with by the remaining members of the Court pursuant to s 45AA(1) of the Supreme Court Act 1970 (NSW).

Adoption of the referee’s report

1. [19]

   There is no dispute as to the approach the Court should take on the motions to adopt the report. The discretion conferred on the Court by UCPR, r 20.24 is a wide one: Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 at [21] (Leeming JA, Ward JA agreeing). The relevant principles are well-established and are conveniently stated by McDougall J in Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784 at [7] with respect to former Pt 72, r 13 of the Supreme Court Rules 1970 (NSW), the predecessor to UCPR, r 20.24. Relevantly for the present case, those principles include:

2. [20]

   The referee’s report is detailed, methodical and comprehensive. In addressing the eight questions for inquiry and report, the report identified the relevant issues raised by the question, referred to relevant evidence, summarised the parties’ submissions and gave reasons for the referee’s opinion on each question.

3. [21]

   Since the adoption of the report is largely unopposed, except for a single issue concerning Armmam’s claim, it is not necessary to summarise the referee’s detailed reasons for finding that (1) the waterproofing on the southern façade was defective, (2) the cladding on the northern and southern façades was defective, and (3) the miscellaneous defects in the common property were established and in each case the proposed method of rectification was necessary and appropriate, and assessing the cost of rectification.

4. [22]

   However, it is necessary to briefly refer to an anterior issue in relation to (3) above. As the referee noted at [266] of the report, question 7 was directed to whether the lot owners had established the existence of the miscellaneous defects in the common property identified in the Scott Schedule and the question did not extend to whether, if the alleged defects were established, Rialto was in breach of contract in respect of these defects. Although the referee received submissions on that issue and expressed her opinion for the assistance of the Court, it is necessary for the lot owners to establish in this Court that the miscellaneous defects in the Scott Schedule constituted a breach by Rialto of its obligations under the contracts with the lot owners.

5. [23]

   To establish these breaches of contract, the lot owners relied upon the expert evidence at trial of Mr Bruce Hodson of RHM Consultants, an engineer building consultant, and Mr Hamish McGill of Watermark Services Group Pty Ltd, a plumber with extensive experience in system installation, system design and investigation of plumbing systems. The evidence of Mr Hodson and Mr McGill identified the relevant common property defect, the causes of the defect, and the reason that the defect is either a breach of the BCA or applicable standards or comprises a failure to construct the building in a proper and workmanlike manner.

6. [24]

   At the hearing, senior counsel for Rialto confirmed that Rialto did not contest that the miscellaneous defects in the Scott Schedule which the parties referred to as the Additional Defects constituted a breach by Rialto of its obligations under the contracts with the lot owners. I am satisfied on the evidence that a finding in those terms should be made.

7. [25]

   Given that the applications of three lot owners (Cancer Care, CCA and Davjul) are unopposed, the report should be adopted insofar as it concerns their claims. Cancer Care, CCA and Davjul are entitled to judgments in the amounts sought in their motions, which includes pre-judgment interest up to 15 May 2023: see [13] above.

8. [26]

   The default rule under UCPR, r 36.4 is that a judgment takes effect on the date on which it is given or made: r 36.4(1)(a). However, the Court may order that a judgment order take effect as at a date earlier or later than the date fixed by that rule: r 36.4(3). It is common ground this is an appropriate case to ante-date the judgment to take effect on 15 May 2023, being the date of filing of the lot owners’ motions.

Armmam

1. [27]

   Armmam’s motion seeks judgment in the amount of $106,585.60 comprising the following amounts referred to at [429] of the report:

   1. (1)

      $1,492.40 to replace the damaged ceiling tiles in lot 7;

   2. (2)

      $1,966.70 to replace the damaged window-sill in lot 7;

   3. (3)

      $103,126, being Armmam’s 6.75 per cent share of the cost of rectifying waterproofing defects in the southern façade. (As noted in the referee’s report, 6.75 per cent represents Armmam’s share to the total unit entitlement: see the answer to question 6(c) in [11] above.)

2. [28]

   There is no dispute in relation to items (1) and (2) above. Rialto only objects to the adoption of the report insofar as it concerns item (3). It advances alternative arguments: first, that the finding was not related to or directly relevant to question 4 which was whether the construction of the southern façade was a breach of the Armmam contract. Second, that the rectification method for the defective waterproofing of the southern facade was not necessary or reasonable, referring to the qualification to the prima facie rule for assessing damages in Bellgrove v Eldridge (1954) 90 CLR 613 at 617; [1954] HCA 36.

3. [29]

   Special condition 15 of the Armmam contract (Blue 3/1390) included:

4. [30]

   At [212], the referee found Rialto to be in breach of its contract with Armmam giving the following reasons.

5. [31]

   First, it was uncontroversial that lot 7 had a boundary on the southern façade of the building: at [208].

6. [32]

   Second, the waterproofing defects in the southern façade were across the whole of the southern façade and not simply limited to particular locations where internal damage from water penetration appeared. Further, the manifestation of water damage at any particular point was not necessarily an indication of water ingress occurring locally, meaning that the point of entry could be some distance from the point of damage: at [209].

7. [33]

   Third, addressing Rialto’s submission that the subject matter of the Armmam contract can only be lot 7, and did not extend to rectification other than lot 7, the referee said at [210]-[211]:

8. [34]

   Addressing question 5 concerning Armmam’s claim for the cost of rectifying the defect in Scott Schedule item 1.2 (the deterioration of set joints in lot 7 MDF window-sill on the southern wall, with isolated swelling caused by water penetration through the southern wall) plus 6.75 per cent share of the cost of rectifying the southern façade waterproofing defects, the referee accepted at [226] Mr Hodson’s unchallenged evidence concerning the existence of this defect and considered his recommended rectification to be necessary and reasonable.

9. [35]

   After referring at [228] to special condition 15(b), (c), (d) and (e) of the Armmam contract, the referee found at [230]:

10. [36]

    Further, when addressing question 6(c) concerning the cost of the rectification of any defects to Armmam’s individual property lots 7, 8, 9 and/or 10, the referee made the following findings at [253]-[255]:

11. [37]

    The parties diverged as to two matters: first, whether Armamm’s entitlement to damages arising from waterproofing defects to the southern façade was within the scope of the reference; and second, the scope of Rialto’s rectification obligations prior to completion of the contract under special condition 15.

12. [38]

    On the first issue Rialto says that (i) question 4 was limited to structural integrity matters, (ii) the referee dealt with waterproofing issues in [209]-[211] not structural integrity matters, and (iii) the finding at [212] that Rialto is in breach of the Armmam contract is for reasons not related to or directly relevant to question 4. Armmam accepts that the matters dealt with at [208]-[212] are not structural integrity matters but says that question 4 was not so limited; it dealt with defects in the southern façade.

13. [39]

    Question 4 concerned defects in the construction of the southern façade. The referee identified at [192], by reference to the expert evidence, that there were three areas of concern: (1) the extent and severity of water ingress, (2) the combustibility of the cladding, and (3) the structural stability of the façade. The referee correctly characterised “rectifying water entry into the southern window-sills and resealing joints and flashings (cl 15, sub-conditions (c) and (i)) as obligations involving the weather proofing of the southern façade”: at [21]. Contrary to Rialto’s submission, the issue of whether Rialto was in breach of the Armmam contract plainly falls within question 4. That is, water ingress is plainly a defect of the southern façade, which is a structure designed to prevent water penetration.

14. [40]

    On the second issue, Rialto contends that the scope of its obligations in special condition 15, specifically sub-cll 15(c) and (i), are narrow and limited to rectification work within the lot property, given the temporal limitation attaching to its obligation is to undertake the works identified prior to completion and that this narrow reading of special condition 15 is supported by special condition 16.

15. [41]

    Special condition 16 provided that Rialto (i) undertakes that the property is covered by a three-year defects warranty from the builder, (ii) warrants that it has notified the builder of “the defects listed in clause 15 above” and undertakes to ensure that the builder “rectifies accordingly”, and (iii) would prior to completion provide certain documents to Armmam, including “a written report from the builder on how the water leak to the windows was rectified”. Importantly, special condition 17 provided that cll 15 and 16 shall not merge on completion.

16. [42]

    Contrary to Rialto’s submission, special condition 16 does not suggest that a narrow view should be taken of the scope of Rialto’s obligations in special condition 15, specifically sub-cll 15(c) and (i). The undertaking by Rialto in sub-cl 16(b) to ensure that the builder “rectifies accordingly” “the defects listed in clause 15 above”, read together with the non-merger provision in special condition 17, makes plain the importance the parties attached to Rialto’s obligation in special condition 15 that Rialto and the builder carry out the specified rectification work prior to completion in a proper and workmanlike manner.

17. [43]

    As the referee observed at [210], Rialto submitted on the reference that if special condition 15 incorporated an obligation to rectify the cause of the manifestation of water entry, it was only local rectification and did not extend across the whole façade. The referee rejected that construction finding at [210] that (a) the promise in sub-cl 15(i) to “rectify water entry to south window sills, and repaint” was a promise to rectify the cause of the damage, (b) the promise in sub-cl 15(c) to “reseal joints and flashings where required” was a promise of rectification of water entry, and (c), the cause of the water damage was water entry from common property into lot property.

18. [44]

    As the referee found, the language of “rectify water damage” and “reseal joints and flashings” directs attention to the cause of the damage. To rectify water damage and to reseal joints and flashings requires “to set right, remedy or correct” the cause of the damage. On the referee’s unchallenged factual findings, those obligations necessarily required correcting water entry from the common property to the lot property. There was no error in the referee’s construction of the nature of Rialto’s obligation.

19. [45]

    It was well-open to the referee to find that Rialto did not comply with its promise in special condition 15 to carry out the specified work in a proper and workmanlike manner prior to completion. The referee found that (i) the evidence indicated that the only waterproofing work Rialto’s builder carried out was some ineffective sealing of the façade where the water ingress was thought to be prevented, (ii) resealing of the joints and flashings had not been undertaken, and (iii) the work of repairing and repainting the areas damaged by water ingress could only be successfully/reliably achieved once this weather-proofing work was complete.

20. [46]

    The argument advanced by Rialto against adoption of this part of the report is essentially the same argument which the referee carefully considered and rejected in the report. I am not persuaded that the referee’s construction of special condition 15 of the Armmam contract involved an error of law.

21. [47]

    The alternative argument advanced by Rialto goes to quantum. It is said that the referee erred in finding that the method of rectification proposed by the lot owners for the southern façade was necessary and reasonable. The qualification in Bellgrove v Eldridge to prima facie rule for assessing damages as the cost of reinstatement is discussed in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8 at [13]-[19]. The issue is also discussed in Owners SP92450 v JKN Para 1 Pty Ltd [2023] NSWCA 114 at [69]-[70] (Gleeson JA, Leeming and White JJA agreeing), which is convenient to reproduce in full:

22. [48]

    In considering Rialto’s submission on unreasonableness, it is necessary to keep in mind that the referee found at [210] that sub-cll 15(c) and (i) promised to rectify the cause of the damage, which the referee found was water entry from common property into lot property. It is also necessary to take into account the referee’s finding at [210] that the purpose of the glazed cavity wall construction flashings, which required rectification, was to prevent water entering a building’s interior, and that includes entering through common property into lot property.

23. [49]

    The rectification method accepted by the referee as necessary and reasonable was for all southern façade glazing to be disassembled and reassembled during which façade cavity defects were to be rectified: at [253]. The damages assessed by the referee with respect to breach of sub-cll 15(c) and (i) included Armmam’s 6.75 per cent portion of the costs to the owners’ corporation of carrying out the required rectification.

24. [50]

    As the party in breach, Rialto has the onus of displacing the prima facie rule for assessing damages: JKN Para 1 at [71]f. It has not done so. This is not a case where, in the words of Keane JA in Kirby v Coote [2006] QCA 61 at [52], “[i]t is clear that the expenditure imposed on the defendant is disproportionate to any benefit to the plaintiff in terms of the vindication of the plaintiff’s right to recover its actual loss from the defendant”.

25. [51]

    The referee’s report in relation to Armmam’s claims against Rialto should be adopted. It follows that Armmam is entitled to judgment in the amount sought in its motion. Again, the judgment in favour of Armmam should take effect on 15 May 2023: see [26] above.

Interest on costs and disbursements

1. [52]

   The default position is that interest runs on a costs order at the prescribed rate from the date of the order, unless stated otherwise in the Court order: Civil Procedure Act 2005 (NSW), s 101(4) and (5). Nevertheless, the Court retains a discretion to order otherwise under s 101(4), including to order that interest run from an earlier date. An order for interest on costs and disbursements from an earlier time than the date of the costs order is essentially compensatory.

2. [53]

   The orders sought by the lot owners adopt the complex formula set out in order (3) in Lahoud v Lahoud [2006] NSWSC 126 which requires the attribution of payments between the client and the solicitor to particular parts of the party/party costs. As the orders are not opposed, it is appropriate to make such orders.

Costs – the competing contentions

1. [54]

   In the principal judgment, the Court reserved the costs of the proceedings in this Court and the District Court for further consideration (order 10).

2. [55]

   The lot owners also seek costs orders against Rialto, both at first instance and on appeal. It is said there is no reason that costs should not follow the event: UCPR, r 42.1.

3. [56]

   In addition, the lot owners seek a special costs order in relation to the proceedings below and in this Court relying upon a Calderbank offer contained in a letter dated 12 January 2021 from Grace Lawyers on behalf of the lot owners to Rialto’s solicitors offering to resolve the proceedings for $750,000 inclusive of costs. That offer was rejected on 13 January 2021 when the solicitors for Rialto made a counter-offer that the proceedings be dismissed by consent with no order as to costs.

4. [57]

   In written submissions dated 15 November 2023, Rialto indicated that it consented to the following orders being made:

   1. (1)

      there be no order as to costs of the trial with the effect that the parties bear their own costs of those proceedings; and

   2. (2)

      the appellant pay the three respondents’ (Cancer Care, CCA and Davjul) costs of the appeal on an ordinary basis.

5. [58]

   Rialto submitted that it would visit an injustice on it if it was ordered to pay the costs of the aborted District Court hearing, as well as the costs of this appeal (which it acknowledged it must pay as well) and the costs of the reference. It is said to do otherwise would punish the appellant for the trial judge not properly executing his duties and there is nothing that Rialto did to create this situation. It is also said that this injustice would be compounded by an order for indemnity costs.

6. [59]

   With respect to Armmam’s appeal, Rialto submitted that if Armman’s motion succeeds, the following orders should be made:

   1. (1)

      there be no order for costs of the District Court proceedings; and

   2. (2)

      Rialto pay the costs of the appeal on the ordinary basis.

Costs in the District Court

1. [60]

   The default rule in UCPR r 42.1 is that costs follow the event, unless the Court considers some other order should be made. Generally, the “event”, as referred to in r 42.1, refers to the event of a claim or counter-claim, as the case may be. It may be understood as referring to the practical result of a particular claim: Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 at [15], referring to Windsurfing International Inc v Petit [1987] AIPC 90-441 at 37.861-37,862 (Waddell J).

2. [61]

   Where a new trial is ordered, the general rule is that costs of the first trial will follow the event of the new trial: Brittain v Commonwealth of Australia (No 2) [2004] NSWCA 427 at [30] where McColl JA (Handley and Tobias JJA agreeing) said:

3. [62]

   In the present case, the general rule where a new trial is ordered provides a useful analogy where the undetermined issues at trial were referred by this Court to a referee for inquiry and report. If one looks at the District Court proceedings, taking into account the result on appeal, the lot owners have been successful on both liability and in respect of damages.

4. [63]

   Contrary to Rialto’s submissions, an award of costs in favour of the successful party is not to punish the losing party, but to compensate the party which succeeds. No reason has been shown to depart from the usual rule that costs follow the event. The costs of the first trial should follow the event of the adoption of the referee’s report. The appropriate order is that Rialto pay the lot owners’ costs of the District Court proceedings.

5. [64]

   The lot owners say that the Calderbank offer constituted an offer of settlement in unequivocal terms and, assuming the report is adopted and judgment is entered in the amounts sought in the motions, the lot owners have obtained judgment for an amount substantially higher than $750,000. It is also said, without contradiction by Rialto, that at the date of the offer, the lot owners had served their lay and expert evidence, the offer was expressed to be open for 14 days from 12 January 2021, and Rialto had ample time to consider the offer with the benefit of the lot owners’ evidence.

6. [65]

   In opposing a special costs order Rialto submits that it was reasonable not to accept the offer given that it was a “rolled up offer” to resolve all of the claims in each of the proceedings”. It is said that it was not possible for Rialto to determine therefore how much each of the lot owners sought in the division of any settlement amount.

7. [66]

   The difficulty with this submission is that it ignores that the question is whether the offer is made in terms that enable the offeree to give proper consideration to it: Monie v Commonwealth of Australia (No 2) [2008] NSWCA 15 at [13] (Beazley JA, Mason P agreeing). In Monie at [28], Beazley JA said of a joint offer made by three plaintiffs in a single proceeding:

8. [67]

   Thus, where multiple claimants make a single offer of compromise, a failure to distinguish between the claimants in an offer of compromise is not a reason in itself for refusing an order for indemnity costs.

9. [68]

   In this case, the offer of joint settlement of four proceedings did not deprive Rialto of the ability to properly assess the claims. As mentioned, the lot owners had served their lay and expert evidence and each of their claims had been fully particularised in the Scott Schedule and the supplementary report of Mr Madden dated 6 November 2020, as referred to in the Calderbank offer. Like the position in Monie at [30], it was unreasonable for Rialto not to accept the offer of compromise because, as the judgments in this appeal demonstrate, the combined value of the claims is in excess of the offer, in an amount that is not de minimis.

10. [69]

    There is no dispute that the offer of compromise was a “genuine offer of compromise”. The lot owners should each have a special order for costs in the District Court proceedings from 12 January 2021.

Costs in this Court

1. [70]

   It is not in dispute that Rialto should pay the lot owners’ costs of the appeal. The parties diverged as to whether a special costs order should be made.

2. [71]

   Insofar as the lot owners relied upon the Calderbank offer made in the proceedings below, that offer had lapsed (prior to the conclusion of the trial) and it was not possible for Rialto to accept it thereafter. As the offer was not renewed, it cannot be relied upon on appeal as a basis for a special costs order: Trustee for the Salvation Army (NSW) Property Trust & Anor v Becker (No 2) [2007] NSWCA 194 at [9] (Ipp JA, Mason P and McColl JA agreeing); Monie at [4].

3. [72]

   Insofar as the lot owners relied on the late concessions by Rialto in not contesting significant parts of the motions, the Court must be careful not to discourage the resolution of proceedings by making costs orders which might otherwise appear to operate as a disincentive for making concessions.

4. [73]

   Nor is it appropriate in a case like the present, where the adoption of the report was largely uncontested, to spend time attempting to assess whether the concessions reflect a capitulation because Rialto’s opposition to the motions was unreasonable, as the lot owners characterise the position, or a contraction of the issues and should not result in a special costs order, as Rialto characterises its concessions.

5. [74]

   The appropriate order is that Rialto pay the lot owners’ costs of each appeal, including the costs of the reference, on the ordinary basis.

Orders

1. [75]

   I propose the following orders:

   1. (1)

      In each appeal, pursuant to r 20.24 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), the whole of the report of Ms Janet Grey dated 17 April 2023 be adopted.

   2. (2)

      Judgment be entered for each respondent in the separate appeals in the following amount inclusive of interest up to 15 May 2023:

   3. (3)

      The judgments referred to in (2) above shall take effect on 15 May 2023.

   4. (4)

      In each proceeding in the District Court (2018/115009, 114952, 115043, 2019/91017), the defendant to pay the plaintiff’s costs of the proceedings on the ordinary basis up to 11 January 2021, and thereafter on an indemnity basis.

   5. (5)

      In each appeal, the appellant to pay the respondent’s costs in this Court, including of the reference, on the ordinary basis.

   6. (6)

      In each appeal, and the proceedings below in the District Court referred to at (4) above, the appellant is to pay the respondent interest on costs and disbursements on appeal and in the proceeding below, at the rates set out in r 36.7 of the UCPR on the Allowed Percentage of each amount of costs and disbursements actually paid by the respondent, from the date of payment by the respondent of each such amount of costs and disbursements until such time as the appellant has paid the costs due to the respondent under any order made in these proceedings where: