Schmuelly v Elrob Construction Group Pty Ltd (No 4) (costs)

1. [1]

   HER HONOUR: This judgment is about costs. I gave judgment in this matter on 6 March 2025: Schmuelly v Elrob Construction Group Pty Ltd [2025] NSWSC 118. I made directions for the parties to confer in respect of costs and, in the event that no orders were agreed, to file any affidavits and submissions in support of the costs orders sought, such application to be determined on the papers.

2. [2]

   I have received submissions from the plaintiff. I did not have the benefit of submissions from the defendants to assist in the exercise of my discretion as to costs. The judgment assumes familiarity with my primary judgment.

Submissions

1. [3]

   The plaintiff sought his costs of the claim and cross-claim from the first defendant, as the final orders made by the Court represented a substantial success for him. The plaintiff submitted that there was no reason to depart from the usual rule that costs follow the event under r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW). The Court accepted the expert opinions of Mr Matley and Mr Dyson in relation to the building defects and defective swimming pool. The Court accepted the expert opinion of Mr Arden in relation to the costs of remedying the defects and overpayment for the second and third milestones. (In part, this followed from the fact that I refused leave to the defendants to rely on their expert reports served the day before the trial: Schmuelly v Elrob Construction Group Pty Ltd (No 2) [2025] NSWSC 26.) The Court gave judgment against the first defendant to pay the plaintiff $1,133,332 plus interest, and dismissed the cross-claim.

2. [4]

   The plaintiff submitted that the proceedings had been significantly delayed and prolonged by the defendants’ failure to file and serve evidence (although I note that, in part, this was likely explained by the tragic death of the second defendant’s wife). The plaintiff submitted that the proceedings had been substantially delayed as a result of the attitude adopted by the defendants throughout the proceedings, leading the plaintiff to incur significant legal costs as a result of that delay. (This submission was not well supported by, for example, an affidavit.)

3. [5]

   The plaintiff submitted that he substantially succeeded in obtaining the primary relief sought. That is the 'event' to which r 42.1 of the UCPR calls attention. The exercise of the costs power should normally require an unsuccessful party to pay a successful party's costs, at least to the extent that those costs have been reasonably incurred in the conduct of the litigation: Latoudis v Casey (1990) 170 CLR 534 at 566-7; [1990] HCA 59. The entitlement to costs arises from success on the subject matter of the proceedings (or the relevant "event") and provides an additional compensatory indemnity for the vindication of the successful party's position: Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52 at [32]-[35]; [2007] HCA 56. A court should ordinarily award the costs of the proceedings to a successful party without attempting to differentiate between the issues on which the party succeeded and any issues on which the party failed: Waters v PC Henderson (Aust) Pty Ltd (1994) 254 ALR 28 at 330-331; [1994] NSWCA 338.

Consideration

1. [6]

   The plaintiff did succeed in his claim against the builder, obtaining a judgment of some $1.13 million to rectify building defects and to recover overpayments for variations and milestone payments.

2. [7]

   The plaintiff failed in his claim for greater damages of some $3.66 million. This was sought from both defendants under the Australian Consumer Law. The same sum was sought against the builder for the costs to complete the building works. Roughly, the $1.13 million awarded formed part of this larger figure. The plaintiff was not awarded the higher sum as he did not establish that the builder had repudiated the building contract when removing scaffolding and security fencing from the building works. In my primary judgment, I concluded at [113]:

3. [8]

   The Court has wide discretionary powers to apportion costs where a case involves multiple issues and a party succeeds on some issues but fails on others. As the Court of Appeal observed in Ryde Developments Pty Ltd v Property Investors Alliance Pty Ltd (No 2) [2018] NSWCA 40 at [6]:

4. [9]

   More recently in Verde Terra Pty Ltd v Central Coast Council [2023] NSWLEC 110, Pepper J summarised the principes on the appointment of costs at [22]: (citations omitted)

5. [10]

   Absent an application by the defendants for an apportionment of costs, I consider it appropriate to order that the first defendant pay the plaintiff’s costs of the proceedings, comprising both the claim and cross-claim, where the plaintiff has succeeded in obtaining a substantial judgment. It cannot be said that the issues on which the plaintiff failed were unmeritorious. The material on which the defendants relied – to successfully defend the Australian Consumer Law claim and in respect of repudiation – was not tendered until trial. That said, the documents were largely communications with the plaintiff and thus likely to have been in his possession. The fact that the plaintiff did not obtain all of the damages sought does not detract from the fact that he has established that the building work performed by the first defendant was defective and warranted an award of damages to rectify those defects.

6. [11]

   For these reasons I make the following orders:

   1. (1)

      Order the first defendant to pay the plaintiff’s costs of the proceedings, including the cross-claim.