D.R. Design (NSW) Pty Limited v Grand City International Development Pty Ltd (No 2)

In these proceedings, the plaintiff, D.R. Design (NSW) Pty Limited (DR), sought to recover architectural and project management fees said to be owing by the defendant, Grand City International Development Pty Ltd (GCI), under a contract entered into on 8 October 2014.

I delivered judgment in the proceedings on 19 December 2017 (see D.R. Design (NSW) Pty Limited v Grand City International Development Pty Ltd [2017] NSWSC 1778) and, in accordance with that judgment, the parties brought in short minutes of order which were made by the Court on 14 February 2018, by which the Court gave judgment in favour of DR against GCI in the sum of $131,870.73 and gave directions for the filing of additional evidence and submissions in relation to costs, with the intention that the question of costs would be dealt with on the papers.

This judgment concerns that question.

DR claims that it is entitled to its costs of the proceedings on the ordinary basis in accordance with Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 42.1, which provides:

GCI advances three reasons why the Court should depart from the general principle set out in UCPR r 42.1. First, it relies on a number of offers of compromise. Second, it relies on UCPR r 42.34. Third, it contends that the Court should, in the exercise of its general discretion in relation to costs, refuse to make a costs order in DR’s favour because the costs of the proceedings were completely disproportionate to the amount recovered.

GCI relies on three offers of compromise. Two were made before the proceedings were commenced. The first was made by letter dated 22 August 2016 in which GCI offered to settle the dispute between the parties for $82,550 inclusive of GST. The second offer was made by letter dated 14 September 2016, in which GCI offered to settle the dispute for the same amount as it had done in its letter dated 22 August 2016, albeit expressed as $75,045.45 plus GST. The third offer was made on 18 August 2017. It was for an amount of $210,000. It is common ground that that offer was made in accordance with UCPR r 20.26.

DR did better than the first two offers. However, GCI submits that the offers still justify departure from the general rule that costs follow the event because the amounts offered were only slightly less than the amount ultimately recovered and they were made at a time when neither party had incurred substantial costs. On any view, DR would have been better off it had accepted the offers than it is now because of the additional costs it has incurred.

I do not accept that submission. The submission may have some bearing on the general submission that the Court should refuse a costs order in DR’s favour because the costs incurred were disproportionate to the amount claimed or the amount recovered. I return to that issue below. However, the offers cannot operate to attract the principle relating to informal offers of compromise that where a party unreasonably rejects an offer of compromise that was at least as favourable as the judgment it obtains, that may justify a special costs order in favour of the party who made the offer. A necessary element for the operation of that principle is that the party who rejects the offer does no better than the offer: see, for example, Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [7]f per Basten JA (with whom McColl and Campbell JJA agreed). Here, DR did do better than the two offers. The fact that it had to expend more to achieve that result than the additional amount it recovered does not alter that point.

As to the third offer, UCPR r 42.15 relevantly provides:

Leaving aside costs before the offer was made for the moment, DR contends that the Court should order otherwise in this case because the Court adopted an interpretation of the contract for which neither party contended and because GCI gave no explanation for the offer, so that DR was in the dark about which components of its claim were accepted and which were not, with the consequence that it was unable to make a proper assessment of the offer.

I do not accept that submission. The offer was obviously a genuine offer of compromise. GCI was not obliged to make an offer that accepted certain components of the claim and not others or to explain how its offer was calculated. DR was capable of evaluating the offer against the claim that it made. The claim that it made succeeded for less than the amount offered. There is no reason in those circumstances to depart from the general principle.

It follows that GCI is entitled to recover its costs on an indemnity basis on and from 19 August 2017.

UCPR r 42.34 relevantly provides:

The rule clearly applies. DR recovered less than $500,000 and, apart from the rule, is entitled to a costs order in its favour in respect of costs incurred before the offer of compromise was made on 18 August 2017.

The question, then, is whether the proceedings could have been commenced in the District Court and, if so, whether commencement and continuation of the proceedings in the Supreme Court, rather than the District Court, was warranted.

In my opinion, the claim made by DR could not properly have been made in the District Court because the amount claimed exceeded the jurisdictional limit of the Court: see Liprini v McIntyre [2017] NSWSC 1753 at [18] per Adamson J.

In any event, in my opinion, the commencement and continuation of the proceedings in the Supreme Court was warranted. DR had an arguable case that it was entitled to claim the amount that it did. Essentially, its case was that on early termination of the contract it was entitled to recover its fees on a time basis. It might be said that that case lacked merit because the amount it claimed far exceeded the amount it would have been entitled to recover had the contract been completed according to its terms. However, as I observed in my principal judgment, the contract was poorly drafted and the interpretation contended for by DR was certainly an available one. There was no suggestion that it had not done the work or that its hourly rates were unreasonable. Consequently, there was a real prospect that it could have recovered the total amount it claimed, which exceeded the jurisdictional limit of the District Court. That position did not change during the course of the proceedings.

It follows that UCPR r 42.34 does not provide a reason for refusing to permit DR to recover costs before 19 August 2017.

GCI submits that the amount recovered was disproportionate to the costs involved, particularly having regard to the informal offers made by it before the proceedings were commenced. For that reason, it submits that the Court should refuse to make a costs order in DR’s favour.

I do not accept that submission. It appears that the work involved in fulfilling its contractual obligations was substantially more than DR had anticipated and had it been remunerated on a time basis, it would have been entitled to substantially more than the contract price. As a consequence of the early termination of the contract (in accordance with its terms) by GCI, DR was deprived of earning the balance to which it would have been entitled. The contract was poorly drafted and it was unclear from its terms how DR was to be remunerated in the event of its early termination. It was in that context that DR made the claim that it did. As I have said, that claim itself was arguable. The hearing lasted two days, which, in the context of the amount claimed, was reasonable. The case itself was run efficiently. Part of DR’s claim related to variations for which DR was entitled to charge separately on a time basis under the contract. Much of the evidence filed by DR which sought to quantify that aspect of its claim was rejected. However, I do not think it could be said that in advancing that evidence DR acted unreasonably. Taking those matters into account, I do not think there is a basis for rejecting DR’s claim for costs because of the way in which the proceedings were conducted.

The orders of the Court are: