Oikos Constructions Pty Ltd t/as Lars Fischer Construction v Ostin & Anor (No 2)

1. [1]

   BASTEN JA: I agree with White JA.

2. [2]

   MACFARLAN JA: I agree with White JA although, as it is unnecessary to do so in this case, I refrain from expressing a view on the issue addressed by his Honour in [38].

3. [3]

   WHITE JA: On 24 December 2020 this Court allowed an appeal from a judgment of the District Court against the appellant (Oikos) in the sum of $168,885.92 (Oikos Constructions Pty Ltd t/as Lars Fischer Construction v Ostin & Anor [2020] NSWCA 358). In lieu of the judgment entered in the District Court, we directed entry of judgment for the respondents against Oikos in the sum of $35,548.58.

4. [4]

   We ordered that the respondents pay Oikos’s costs of the appeal (Order 5) and directed the service of written submissions on the question of what order should be made as to the costs of the proceedings in the District Court (at [175]).

5. [5]

   The respondents’ claim for damages was divided between damages for what were described as “type 1 defects” and “type 2 defects” (at [148]). The appeal, from the primary judge’s award of damages for “type 1 defects” was allowed but the appeal from the award of damages for “type 2 defects” was dismissed.

6. [6]

   Oikos submitted that the claims for type 1 and type 2 defects were distinct and severable and that the claim for damages for type 1 defects raised the dominant issue at trial. It submitted that the respondents should be ordered to pay 50% of its costs of the proceedings in the District Court, and that an order that the respondents pay its costs on the ordinary basis of a hearing before Letherbarrow DCJ on 14 February 2018 should not be disturbed.

7. [7]

   The respondents agree that the order for costs of the hearing on that day should not be disturbed. They submit that, although the damages to which the primary judge found them to be entitled were reduced on appeal, they were nonetheless the successful parties in the District Court.

8. [8]

   The primary judge had ordered that the respondents be entitled to their costs of the proceedings on the ordinary basis up to 30 January 2018 and thereafter on the indemnity basis. This was on the basis of the respondents having made an offer of compromise on 30 January 2018 that judgment be entered for them against Oikos for the sum of $40,000. As a result of the successful appeal, the respondents did not seek to maintain that order but they submitted that, as the successful party, they should have their costs of the proceedings in the District Court.

9. [9]

   The respondents seek to raise a second issue. By notice of motion filed on 18 January 2021 the respondents seek to set aside Order 5 made on 24 December 2020 that the respondents pay Oikos’s costs of the appeal. They submit that the parties had mixed success on appeal. They submit that the appropriate order is that they pay 50% of Oikos’s costs of the appeal.

Costs of the proceedings below

1. [10]

   Subject to rules of court, costs are in the discretion of the court (Civil Procedure Act 2005, s 98). Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.1 relevantly provides that if the court makes any order as to costs, the court is to order that the costs “follow the event” unless it appears to the court that some other should be made as to the whole or any part of the costs.

2. [11]

   Rule 42.1 has been construed on the basis that “the event” which costs should prima facie follow can be identified as a judgment for the plaintiff or the defendant on the claim (Baker v Towle [2008] NSWCA 73 at [11]; Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266 at [8]).

3. [12]

   This was so, notwithstanding that in relation to a similarly worded rule in England it had been held that, where distinct causes of action were included in the same writ or statement of claim, the defendant was entitled to his costs of a cause of action on which he succeeded, even though the plaintiff was otherwise successful (Myers v Defries (No 2) [1880] 5 Ex D 180) and that the expression “the costs shall follow the event” meant that costs were to be distributed according to the results of the several issues, while the party who was successful on the whole, got the “general costs” (Reid, Hewitt & Co v Joseph [1918] AC 717 at 724-725, 733, 742).

4. [13]

   That the relevant “event” should be considered more straightforwardly as whether there was judgment for the plaintiff or for the defendant on the claim can be traced to the judgment of Jacobs J in Cretazzo v Lombardi (1975) 13 SASR 4 at 16.

5. [14]

   In Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304, this Court identified the principles to be applied as follows:

6. [15]

   A successful party may be denied the whole of its costs or may be required to pay costs in respect of its failure on particular issues, even though that party did not act unreasonably in raising or defending the issues on which it failed (Permanent Trustee Australia v FAI General Insurance Co (Supreme Court of NSW, Hodgson CJ in Eq 3 June 1998 unrep at 10-11); Short v Crawley (No 40) [2008] NSWSC 1302 at [32]; Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd [2008] NSWSC 1423 at [31]).

7. [16]

   In Bowen Investments v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107, Finkelstein and Gordon JJ said (at [5]) that if an issue by issue approach produces a result that is fairer than giving the successful party all of his or her costs, notwithstanding his or her failure on particular issues, then the issue by issue approach should be adopted.

8. [17]

   The claim for type 1 defect damages, on which Oikos succeeded on appeal and ought to have succeeded at trial, was both severable from its claim for type 2 defect damages, and the dominant issue.

9. [18]

   Oikos’s solicitor prepared an affidavit in which he analysed the percentage of the paragraphs of affidavits and experts’ reports that dealt with the defect type 2 issues (the “Dining Room Windows” issues) and the extent to which those issues featured in the parties’ submissions and the evidence.

10. [19]

    He opined that, on his analysis, the type 2 defect issues occupied about 5% of the affidavits, experts’ reports and hearing time.

11. [20]

    As the respondents submitted, this kind of mathematical precision is illusory (Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) at [14] and cases cited). The respondents submitted that:

12. [21]

    They submitted that although the type 1 defects were, “by virtue of the quantum claimed, a significant feature of the trial, the trial also involved determination of the evidence (including quantum) involved in the claims for type 2 defects”. They also submitted that the trial involved “various repeated and renewed procedural arguments raised by Oikos – in respect of which, Oikos failed.”

13. [22]

    The respondents submitted that the time spent and resources involved in the argument on the type 1 defects could not be usefully dissected from the resources involved in running the case as a whole. They submitted that the issue was not “discrete”. Mr Ratcliff’s evidence addressed both defects and he was cross examined on both.

14. [23]

    I do not agree. The type 1 defect issues related to different damage to the building from the issue concerning defective waterproofing of the two dining room windows. They raised different issues of quantum. They raised the issue of contractual construction that did not arise in relation to the type 2 defect issues. They raised different and complex questions of fact as to what work had been done by both Oikos and Mr Amodeo. They raised the issue of causation that did not arise in relation to the type 2 defect issues. The type 1 defect issues also gave rise to the arguments as to whether the respondent should be entitled to maintain the claim for type 1 defects as particularised in what the primary judge called an “amended Scott Schedule”, which arguments would have been unnecessary had damages not been claimed for those defects.

15. [24]

    The evidence at the trial, the parties’ submissions, and the respondents’ experts’ reports were substantially directed to the claim for damages for type 1 defects.

16. [25]

    I accept Oikos’s submission that the respondents’ claim for damages for type 1 defects was a severable, and also a dominant, issue in the proceedings below. Oikos’s success on that issue warrants and requires a different order than that Oikos pay the respondents’ costs of the proceedings below notwithstanding that the respondents have retained a judgment for part of the sum they claimed below.

17. [26]

    Oikos relied on UCPR r 42.35 which provides:

18. [27]

    I do not consider r 42.35 to be relevant. It was reasonable and indeed necessary for the respondents to have joined Oikos to their District Court claim against Mr Amodeo. There is no doubt that they had a genuine claim against both Mr Amodeo and Oikos for more than the jurisdictional limit of the Local Court.

19. [28]

    Once it is decided that an otherwise successful plaintiff has failed on a severable or dominant issue such that it is not appropriate that the plaintiff receive all of his or her costs, in deciding how the discretion as to costs should be exercised to achieve fairness (Bowen Investments v Tabcorp Holdings Ltd (No 2)) the perspective of both parties should be considered. The respondents were successful at trial on the type 2 defect issue, but Oikos was successful on the type 1 defect issue that was substantially more complex, involved the giving of more evidence, and took longer to determine. On balance Oikos had more success than did the respondents. This should be reflected in the costs orders.

20. [29]

    Where courts have taken an issue by issue approach to the making of costs orders, the orders have taken a variety of forms. Sometimes the failure of a successful party on one or more issues will lead to a reduction in the percentage of costs payable to that party. Sometimes failure on particular issues may result in there being no order as to costs of the proceedings, or may result in an order being made for the payment of the otherwise unsuccessful party’s costs. Sometimes orders may be made for payment by both parties of a proportion of the other party’s costs (Griffiths v Boral Resources (Qld) Pty Ltd (No 2) (2006) 157 FCR 112; [2006] FCAFC 196 at [17]).

21. [30]

    Recognising the respondents’ success on the type 2 defect issues, I nonetheless accept Oikos’s submission that the appropriate costs order of the trial is that the respondents pay one half of Oikos’s costs of the proceedings below. This is subject to two particular orders referred to below.

22. [31]

    The primary judge indicated that the respondents were entitled to their costs of Oikos’s unsuccessful notice of motion filed on 8 February 2018 for leave to amend its defence (District Court judgment at [190]). No separate order was made by the primary judge because such costs were subsumed by the costs order the primary judge made. The appeal from the primary judge’s refusal of the application for leave to amend was refused. The costs order foreshadowed by the primary judge should stand.

23. [32]

    As indicated above, there is no reason to interfere with the order that the respondents pay Oikos’s costs of 14 February 2018.

Costs of the Appeal

1. [33]

   The respondents’ notice of motion seeking to set aside the costs order of 24 December 2020 was not filed and served within 14 days. There was therefore no power under r 36.16(3A) to set aside or vary that order.

2. [34]

   The respondents submitted that it may have been a slip on the part of the Court to have made the costs order without having received submissions as to the appropriate order for the costs of the appeal (UCPR r 36.17). However, the order that the respondents pay the appellant’s costs of the appeal was not made by mistake, nor in error. Generally, if a party wishes to make submissions as to costs, it should do so either in written submissions, or at the hearing of the appeal, or it should at least foreshadow a wish to do so in specified circumstances: see Aktas v Westpac Banking Corporation Ltd (No 2) (2010) 241 CLR 570; [2010] HCA 47 at [5]-[7].

3. [35]

   The general rule is that a final costs order, once entered, cannot be varied unless a notice of motion is filed within 14 days after entry (Roads and Traffic Authority of NSW v Palmer (No 2) [2005] NSWCA 140 at [20]-[21]; Deputy Commissioner of Taxation v Meredith (No 2) (2008) 75 NSWLR 462 at 464-466, [6]-[16]; Bennette v Cohen (No 2) [2009] NSWCA 162 at [6]-[11]; Coastwide Fabrication & Erection Pty Ltd v Honeysett (No. 2) [2009] NSWCA 291 at [12]-[17]; Roads and Traffic Authority of NSW v Refrigerated Roadways Pty Ltd (No 2) [2009] NSWCA 336 at [5]-[11]; Malouf v Prince (No 2) [2010] NSWCA 51 at [7]-[24]; Habib v Nationwide News Pty Ltd (No 2) [2010] NSWCA 291 at [33]-[39]; AT v Commissioner of Police, NSW (No 2) [2010] NSWCA 337 at [6]-[13]; Griffith v Australian Broadcasting Corporation (No 2) [2011] NSWCA 145 at [10]-[11], [34]; Kable v State of New South Wales (No 2) [2012] NSWCA 361 at [9]-[15]; Hagerty v Hills Central Pty Ltd (No 2) [2018] NSWCA 279 [10]-[14]).

4. [36]

   There are decisions of this Court relaxing the operation of r 36.16(3A) pursuant to s 14 of the Civil Procedure Act 2005 (NSW) where notice of the intention to apply for a variation of a final costs order is given within 14 days.

5. [37]

   Notwithstanding the observations of Basten JA (with whose reasons Beazley and Macfarlan JJA agreed) in AT v Commissioner of Police, NSW (No 2) at [7]-[10], this Court has relied on s 14 of the Civil Procedure Act to enlarge the power under r 36.16(3A) by dispensing with the requirement for the filing of a notice of motion if the application for an order varying or setting aside a final costs order has been notified, even informally, within 14 days (Kable v State of NSW (No 2) at [3], [9]; Aukuso v Tahan [No 2] [2018] NSWCA 302 at [45]). But the dispensation has been of the requirement under r 18.2(1) for the filing of a notice of motion, not of the time within which notice of an application to vary an order must be given. Rule 36.16(3C) precludes an extension of the time limited by r 36.16(3A) (Boateng v Dharamdas [2019] NSWCA 233 at [23]-[24]).

6. [38]

   I do not consider that s 14 would permit the extension of the time prescribed by r 36.16(3A) for the filing of the notice of motion. I share the difficulty articulated by Basten JA in AT v Commissioner of Police NSW (No 2) in seeing how a power to dispense with a rule assists a party who needs to rely on the rule to avoid the effect of the principle that a final order (including as to costs), once entered, cannot be varied or set aside except on appeal. I doubt that the power in s 14 to dispense with a rule extends to dispensing with a condition to the operation of the rule, the effect of which would be to enlarge the operation of the rule.

7. [39]

   In any event, if there were power to do so, I would not vary the order for the costs of the appeal. I accept that the issue of damages for the type 2 defects was a discrete issue and that the respondents succeeded in maintaining the award of damages for costs of rectification and for costs incurred in obtaining Mr Murphy’s 2012 report. They also maintained the award of damages of $5,000 for the costs of a project supervisor for remedial work about which Oikos made no submissions. The time spent and submissions directed to these questions on appeal were de minimis.

8. [40]

   Sub-issues upon which Oikos did not succeed on appeal in relation to the type 1 defects were not severable, nor dominant. I would not make a different costs order for the costs of the appeal, even if there were power to do so.

9. [41]

   For these reasons, I propose the following orders:

   1. (1)

      Dismiss the respondents’ amended notice of motion filed on 11 March 2021 with costs.

   2. (2)

      In relation to the costs of the proceedings below, order that subject to orders (3) and (4) below, the respondents pay 50% of the appellant’s costs of the proceedings below.

   3. (3)

      The appellant pay the respondents’ costs of the appellant’s notice of motion filed on 8 February 2018 to amend its defence.

   4. (4)

      The respondents pay the appellant’s costs of 14 February 2018 on the ordinary basis.