The Owners - Strata Plan No. 61162 v Lipman The Owners Strata Plan No 61162 v Building Insurer's Guarantee Corporation [2014] NSWSC 622 (23 May 2014)

Last Updated: 29 May 2014

Supreme Court New South Wales

Case Title:	The Owners - Strata Plan No. 61162 v Lipman The Owners Strata Plan No 61162 v Building Insurer's Guarantee Corporation
Medium Neutral Citation:	[2014] NSWSC 622
Hearing Date(s):	29/04/2014, 30/04/2014
Decision Date:	23 May 2014
Jurisdiction:	Equity Division - Technology and Construction List
Before:	McDougall J
Decision:	No order for indemnity costs. Defendants to pay 40% of plaintiff's costs, excluding costs relating to the applications for special costs orders, assessed on the ordinary basis. Those costs to be set off against unsatisfied costs orders in favour of defendants. Decline to order interest on costs. No other order as to costs.
Catchwords:	PROCEDURE - costs - departing from the general rule - general discretion as to costs - whether the court should "order otherwise" as to costs where plaintiff unsuccessful on several claims - application of Uniform Civil Procedure Rules 2005 (NSW) r 42.14 PROCEDURE - costs - costs of mediation - where mediation undertaken at consent direction of the Court - whether costs of mediation are costs in the proceedings PROCEDURE - costs - departing from the general rule - offers of compromise and Calderbank offers - Whether unreasonable for defendants to reject offers of compromise and Calderbank offers where minimal evidence served at the time of the offer - whether unreasonable for defendants to reject offers of compromise and Calderbank offers where no indication of costs incurred PROCEDURE - costs - departing from the general rule - whether costs should be apportioned in cases where there are numerous claims - whether costs should be apportioned where parties have entire or substantial success on some claims but not others - whether costs should be apportioned in relation to discrete claims - how costs can reflect in a practical way the extent to which each of the parties were successful on different claims PROCEDURE - costs - Interest on costs - whether interest on costs should be granted where no explanation before the court for delay in proceedings - whether there is a need for explanation before an interest on costs order in relation to unexplained and extreme delay can be made - application of s 101 Civil Procedure Act 2005 (NSW)
Legislation Cited:	Civil Procedure Act 2005 (NSW) Home Building Act 1989 (NSW) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Calderbank v Calderbank [1975] 3 All ER 333 CJD Equipment v A&C Constructions Pty Ltd [2010] NSWSC 502 Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd [2008] NSWSC 1423 Dean v Stockland Property Management Pty Ltd (No 2) [2010] NSWCA 141 Drummond and Rosen Pty Ltd v Easey (No 2) [2009] NSWCA 331 Harltons CJC Pty Ltd v Fitzgerald (No 4) [2014] NSWSC 523 Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 Hughes v Western Australian Cricket Assn (Inc) (1986) 8 ATPR 40-748 Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd (No 2) [2013] NSWCA 211; (2013) 84 NSWLR 436 Jones v Trad (No 3) [2013] NSWCA 463 Jones v Sutton (No 2) [2005] NSWCA 203 Lahoud v Lahoud [2006] NSWSC 126 Leichhardt Municipal Council v Green [2004] NSWCA 341 Mead v Allianz Australia Insurance Ltd [2007] NSWSC 500 Oshlack v Richmond River Council [1993] HCA 11; (1998) 193 CLR 72 Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 Whitney v Dream Developments Pty Ltd [2013] NSWCA 188; (2013) 84 NSWLR 311 Zepinic v Chateau Constructions (Aust) Ltd (No 2) [2014] NSWCA 99
Category:	Principal judgment
Parties:	The Owners - Strata Plan No. 61162 (Plaintiff) (2005/270930) Lipman Pty Limited (Defendant) The Owners - Strata Plan No. 61162 (Plaintiff) (2005/271047) Building Insurers' Guarantee Corporation (Defendant)
Representation
- Counsel:	Counsel: JJ Young (Plaintiff) M Ashhurst SC / S Goldstein (Lipman) P Bambagiotti (BIGCORP)
- Solicitors:	Solicitors: Doyle Edwards Anderson Lawyers (Plaintiff) Bannermans Lawyers (Defendant) (Lipman) Mills Oakley Lawyers (Defendant) (BIGCORP)
File Number(s):	2005/270930 and 2005/271047

JUDGMENT

1. HIS HONOUR: The plaintiff is the Owners Corporation of a strata title development at Surry Hills. The defendant in one proceeding, Lipman, carried out some of the construction work involved. The defendant in the other proceeding, the Builders Insurer's Guarantee Corporation (BIGCORP), is the statutory successor to defunct insurers who issued policies of insurance in respect of the work performed by Lipman and another builder involved (St Hilliers, which is also defunct).

2. The Owners Corporation claims that the building work carried out by Lipman and St Hilliers was defective. In the two proceedings to which I have referred, it claimed damages for that defective work. In the proceeding against BIGCORP, the Owners Corporation claimed also damages for alleged breach of statutory duty.

3. After an initial hearing lasting some days before Bergin CJ in Eq, the whole of the proceedings were referred to Mr George Inatey SC for inquiry and report. Mr Inatey reported to the Court on 4 December 2013. On 24 March 2014 I ordered that, subject to certain variations agreed between the parties (to correct matters of double counting and the like), the report be adopted. I ordered, also, that the Owners Corporation should have pre-judgment interest on the monies that, as the referee found, it had spent on defects rectification.

4. In arithmetical terms, the parties accepted that, subject to the agreed variations, the effect of adoption of the report was that Lipman and BIGCORP were liable in amounts totalling $869,597.88 together with interest. Of that (pre-interest) amount, Lipman had paid $215,143.47 to the Owners Corporation.

5. On 3 April 2014, Bergin CJ in Eq made orders which, the parties agreed, were appropriate to reflect the adoption of the report subject to the agreed variations. Her Honour ordered a verdict in favour of the Owners Corporation against each defendant in the sum of $1,148,104.96, and directed entry of judgment against each defendant in the sum of $931,541.44.

6. The verdict and judgment figures included prejudgment interest of $277,586.38. The discrepancy between the two arises because of the payment made by Lipman to the Owners Corporation, as recorded at [4].

7. At the parties' request, I had reserved the question of costs. The parties have now put on evidence and submissions dealing with the question of costs. These reasons deal with the costs orders to be made.

The parties' respective positions

8. The Owners Corporation seeks its costs in each proceeding, and, in each proceeding, a special order as to costs.

9. The special orders sought are based on offers of compromise or Calderbank offers served on four separate occasions:

1. 1 December 2011;

2. 21 December 2012;

3. 24 May 2013 (a Calderbank offer only); and

4. 4 June 2013 (again, a Calderbank offer only).

10. It is common ground that the (purported) offer of compromise served on 1 December 2011 was not an offer of compromise for the purpose of the Rules, because it included a requirement, or stipulated as a term of the offer, that the defendants should pay the Owners Corporation's costs. See Whitney v Dream Developments Pty Ltd [2013] NSWCA 188; (2013) 84 NSWLR 311.

11. In addition, the Owners Corporation sought an award of interest on costs actually paid by it, to the extent that those costs might be agreed, or allowed on assessment, in accordance with the formula given by Campbell J in Lahoud v Lahoud [2006] NSWSC 126.

12. Lipman sought orders that (leaving aside the costs of a mediation, to which I will return) costs be awarded one way or the another, and in some cases by percentages, in respect of various aspects of the Owners Corporation's claim. The suggested division of costs was said to reflect the way in which those separate aspects of the claim had been dealt with.

13. In respect of the mediation, Lipman sought an order that each party pay its own costs.

14. The precise orders sought by Lipman were:

1. That each party bear its own costs of and incidental to the mediation that commenced on 8 February 2007 and terminated on 30 November 2011;

2. The Plaintiff pay the Defendant's costs associated with the claims abandoned by the Plaintiff with the filing of the Second Further Amended List Statement being:

a. external brickwork (paragraphs 30-34 of the Amended List Statement);

b. car park roller shutter (paragraphs 58-62 of the Amended List Statement);

c. swimming pool (paragraphs 63-68 of the Amended List Statement).

3. That the Defendant pay, other than the costs dealt with in orders 1 and 2 above:

i) 10% of the Plaintiff's costs of the "Window Defects" (paragraphs 43 to 49 of the Second Further Amended List Statement;

ii) 10% of the Plaintiff's costs of the Acoustics Defects (paragraphs 58 to 62 of the Second Further Amended List Statement);

iii) 50% of the Plaintiff's costs of the Air Conditioning Defects (paragraphs 63 to 67 of the Second Further Amended List Statement);

iv); The remainder of the Plaintiff's costs not otherwise dealt with above on a party/party basis

15. BIGCORP sought that costs should be apportioned "to reflect the real outcome of the proceedings, and the justice of the case as a whole". The application of that principle, BIGCORP submitted, should lead to the following costs orders:

(1) that each party bear its own costs of the mediation.

(2) That the Owners Corporation should pay BIGCORP's costs associated with the claims abandoned by the Owners Corporation in respect of:

(a) external brickwork;

(b) car park roller shutter;

(c) swimming pool.

(3) That up to and including 21 December 2012, BIGCORP should pay, other than the costs dealt with in orders 1 and 2 above:

(a) 10% of the Owners Corporation's costs of the "Window Defects";

(b) 10% of the Owners Corporation's costs of the "Acoustic Defects";

(c) 50% of the Owners Corporation's costs of the "Air Conditioning Defects";

(d) Subject to 5 below, the remainder of the Owners Corporation's costs not otherwise dealt with above.

(4) That as and from 21 December 2012, BIGCORP should pay, other than the costs dealt with in 1 to 3 above:

(a) 30% of the Owners Corporation's costs of the "Window Defects";

(b) 30% of the Owners Corporation's costs of the "Acoustic Defects";

(c) 70% of the Owners Corporation's costs of the "Air Conditioning Defects";

(d) Subject to 5 below, the remainder of the Owners Corporation's costs not otherwise dealt with above.

(5) In respect of the Owners Corporation's claim against BIGCORP:

(i) in respect of the work done by St Hilliers and the associated allegations made in respect of the FAI Insurance Policy No 1804170360 associated with that work, to which a Limitations Defence was raised and;

(ii) for an alleged breach of a statutory duty pursuant to section 103I of the Home Building Act 1989:

Then:

(a) the Owners Corporation is to pay BIGCORP's costs of those claims; and

(b) the Owners Corporation is not to have its costs of those claims as part of any costs order set out herein.

16. In addition, Lipman and BIGCORP each opposed the making of any special order as to costs, and any award of interest on costs paid.

17. Mr Ashhurst of Senior Counsel, who appeared on the hearing of the costs applications with Mr Goldstein of Counsel for Lipman, submitted that the issues on cost could be stated as follows:

1. Are the proceedings of a type that may allow departure from the usual rule that "costs follow the event" due to the nature of clearly separate issues that the claimant was largely unsuccessful on (see Hughes v Western Australian Cricket Association (inc) (1986) ATPR 4-0748 as cited in Jones v Trad (No 3) [2013] NSWCA 463 at [13]).

2. Do the abandoned claims, largely conceded claims and claims that the Plaintiff had only limited success on during the reference (as identified in paragraph 4 of the Lipman submissions in reply) mean that it would be unjust for the Defendants to pay 100% of the Plaintiff's costs (in accordance with the principles enunciated in CJD Equipment v A& C Constructions Pty Ltd [2010] NSWSC 502 at [8]- [9] and Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd [2008] NSWSC 1423 at [52]) up to the date of any offer of settlement by the Plaintiff.

3. If the answer to issues 1 and 2 were in the positive what is the appropriate reduction in the Plaintiff's costs (or alternative form of costs order) for the period up to the date the Plaintiff made any settlement offer.

4. For each of the settlement offers (Calderbank letters) made by the Plaintiff did the Plaintiff insist, as a term of the Defendant's accepting the offer, that the Defendants pay the Plaintiff's costs on all issues, including those issues that the Plaintiff had abandoned or was most likely to not succeed on.

5. If the answer to issue 4 is in the positive does this mean that the Plaintiff has failed to demonstrate that it was unreasonable for the Defendants not to have accepted any or all of the Calderbank offers made by the Plaintiff (Jones v Trad at [45]).

6. For each of the valid Offers of Compromise served by the Plaintiff did acceptance of that offer effectively require the Defendants to pay the Plaintiff's costs on all issues, including those issues that the Plaintiff had abandoned or was most likely to not succeed on (Pt 42.13A(2) UCP Rules), unless the Court were to order otherwise?

7. If the answer to issue 6 was in the positive does this mean that the Defendants have demonstrated that having regard to all the circumstances the Court should exercise its discretion under Pt 42.14(2) of the UCP Rules to not make the usual order in favour of the Plaintiff as a result of its service of the Offers of Compromise (see generally Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 at [15] and Jones v Sutton (No. 2) [2005] NSWCA 203 at [19] and [53]).

8. Is it a relevant matter to the exercise of the Court's discretion refereed to in issue 6 above that the Plaintiff could have issued an Offer of Compromise in accordance with Pt 20.26 of the UCP Rules that excluded the claims it had abandoned or had little prospects of success on and had in fact made such an offer (in the form of a Calderbank letter) on 7 and 15 June 2012 in relation to the "windows" claim.

9. Should an order be made that each party is to pay its own costs of the protracted mediation consistently with the principles enunciated in Mead v Allianz Australia Insurance Ltd [2007] NSWSC 500.

18. Neither Mr JJ Young of Counsel, who appeared for the Owners Corporation, nor Mr Bambagiotti of Counsel, who appeared for BIGCORP, suggested that this statement of the real issues, in relation to costs, was incomplete or inaccurate.

19. It is convenient to note at this point that Mr Bambagiotti essentially adopted the submissions of Mr Ashhurst, to the extent that they covered issues that were common to Lipman and BIGCORP.

A brief chronology of some relevant events

20. What follows is taken substantially from a chronology prepared by Mr Ashhurst. Neither Mr Young nor Mr Bambagiotti suggested that it was inaccurate or incomplete.

21. The building contract between the developer (Avri) and Lipman was made on 12 November 1997.

22. An interim occupation certificate was issued on 21 October 1999.

23. On 18 December 2001, the Owners Corporation commenced a proceeding against BIGCORP in the Consumer Traders and Tenancy Tribunal (CTTT). That proceeding continued in the CTTT until, on 10 October 2005, it was transferred to this court. Two days earlier, the Owners Corporation had commenced the Lipman proceeding in this court. Avri and the architect involved (NBRS) were also named as defendants in the Lipman proceeding.

24. The summons and list statement in the Lipman proceeding were amended on 22 December 2005, and again on 10 May 2006.

25. On 30 June 2006, an order was made by consent directing the parties to mediate their disputes, with the Hon MJR Clarke QC as mediator.

26. A preliminary conference in the mediation was conducted on 8 February 2007. The parties at the time (the Owners Corporation, BIGCORP, Avri, NBRS, and ultimately, Lipman, agreed to retain an expert, Mr David West, and to share his costs. Mr West was retained to investigate and report on water penetration defects.

27. On 15 May 2008, Avri ceased participating in the mediation and taking any active role the Lipman proceeding. It is no longer a party.

28. Mr West reported at some stage thereafter. In late 2009, a quantity surveyor, Mr Meredith, was appointed to cost the various rectification proposals outlined by Mr West. Mr Meredith reported in November 2011.

29. On 30 November 2011, the actual "mediation" took place. (By "mediation" in this context, I mean a gathering of the parties at which, in joint and several sessions and in joint and several discussions between the mediator and the parties, settlement options were canvassed.)

30. The mediation was unsuccessful in resolving all disputes. However, on 11 December 2011, the Owners Corporation settled its case against NBRS.

31. On 25 January 2012, the Owners Corporation amended its claim against Lipman yet again (by then, Lipman was the only defendant in the Lipman proceeding). The damages claimed totalled $2.14 million.

32. I should note that, as Mr Young submitted, the second further amended summons and Scott Schedule served with it reflected in substance, although perhaps not in exact detail, a schedule of damages provided by the Owners Corporation to the extant defendants on 22 November 2011: that is, some eight days before the mediation.

33. The Owners Corporation had served a report of an expert, Mr Rabone, prior to the mediation. Mr Rabone dealt with alleged defects in the air conditioning services. However, the remaining evidence in chief on which Lipman relied was served between July and September 2012.

34. On 5 September 2012, the proceedings were listed for hearing to commence on 6 May 2013. Thereafter, on 10 December 2012, the Owners Corporation filed and served a third further amended summons and list statement, and a further amended Scott Schedule. It was the further amended Scott Schedule which set out the Owners Corporation's case, as to defects, that was the subject of the hearing before the referee and by reference to which he reported.

35. After the experts had conferred and produced joint reports, and the conclusions expressed by the experts in their joint reports had been costed, the hearing commenced (before Bergin CJ in Eq). It continued for some five days until, on 13 May 2013, her Honour made the order for reference to Mr Inatey.

36. The referee took evidence on some 15 days during June, July and August 2013. He heard the parties' closing submissions for some three days during September 2013. With admirable efficiency, the referee produced his report on 4 December 2013.

37. The Owners Corporation's notices of motion for adoption of the report were filed on 7 February 2014. As I have said, I heard those notices of motion on 24 March 2014 and gave judgment on that day, adopting the report subject to the agreed variations.

General approach to the offers of compromise and Calderbank offers

38. It was, ultimately, common ground that the Owners Corporation had bettered each of the offers that it had made, in the sense that the judgment ultimately directed in its favour, considered together with the conceded and paid amounts, was greater than the maximum of the amounts for which it offered to compromise its claim. (I say "ultimately" because at first, Mr Bambagiotti was inclined to dispute this position. However, the judgment, with which the offers are to be compared, was for the pre-interest amount together with interest to the date of judgment. Mr Bambagiotti eventually, and correctly, accepted that interest was to be taken into account in considering whether the Owners Corporation had bettered its offers, although, as he pointed out, the margin of "betterment" was not great.)

39. The unchallenged evidence for the Owners Corporation was that, at the date each of the offers was made, the total of the pre-interest judgment amount and interest thereon at the appropriate rates until the date of the offer, together with the conceded and paid amounts, exceeded the amount of the offer (in practical terms, exceeded the highest of those amounts, namely $1 million).

40. It was common ground that in respect of the only valid offer of compromise that had been served:

(1) the Owners Corporation had bettered the offered settlement position; and

(2) hence, it was for the defendants to show that the costs consequences prescribed by UCPR r 42.14(2) should not follow.

41. As to the Calderbank offers, it was common ground that:

(1) the Owners Corporation had bettered each of its offers; but

(2) nonetheless, it was incumbent on the Owners Corporation to show that, having regard to the circumstances in which each of the Calderbank offers was made, it was unreasonable for the defendants to have refused to accept them.

42. In my view, that approach to the various offers was correct. However, it is necessary to say a little more about the underlying principles.

43. The first point is to note that r 42.14(2) operates as an exception to the general costs discretion given by s 98(1) of the Civil Procedure Act. To put it another way, r 42.14(2) provides for what might be called a prima facie mode of exercise of the costs discretion in the particular circumstances in which the rule operates. However, it is a prima facie indication which is subject to the power of the Court to order otherwise if it thinks it appropriate to do so.

44. The discretion to order otherwise is not controlled by any linguistic or other express considerations. Thus, as the Court of Appeal (Spigelman CJ, Beazley and McColl JJA in a single judgment) said in Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSW 368 at [15], there is no requirement that exceptional circumstances be shown before the Court orders otherwise, or that the Court may only order otherwise if it is necessary to do so to avoid substantial injustice. As their Honours said, "the discretion is one that has to be exercised having regard to all the circumstances of the case".

45. The discretion is one given to the Court. There is thus a requirement that it be exercised judicially. That entails, I think, that the discretion is to be exercised taking into account all (and only) relevant factors; that is it is to be exercised in a way that is capable of rational explication; and (conversely) that it is not to be exercised capriciously. The discretion is to be exercised so as to ensure that the costs order made meets the needs of the particular case.

46. Nonetheless, when the Court considers whether to exercise the discretion to order otherwise, it must take into account the interests of justice in the particular case. I do not regard anything said in Regency Media at [15] as suggesting to the contrary. In this context, consideration of "the interests of justice" requires the Court to consider both the consequences of making the order sought and the consequences of declining to do so, and to see whether one or other of those sets of consequences may be said to be concordant (or discordant) with the interests of justice in the circumstances of the case under consideration.

47. To put it more compendiously, the discretion to order otherwise given by UCPR r 42.14(2) requires the Court to consider, in relation to costs, how best, in the circumstances of the particular case, the interests of justice will be served by making or withholding the order sought. In performing that task, the Court must pay attention to (among other things) the policy underlying the rules relating to offer of compromise and their costs consequences.

48. The position in respect of Calderbank offers does not seem to me to be entirely dissimilar. The general rule in litigation is that costs follow the event (r 42.1). Where costs follow the event, then ordinarily they are awarded on the ordinary basis. The power to order costs (in whole or in part) on the indemnity basis is exceptional, in the sense that it is a departure from the ordinary rule. As Gaudron and Gummow JJ explained in Oshlack v Richmond River Council [1993] HCA 11; (1998) 193 CLR 72 at [44], before the Court can order indemnity costs it is necessary to find what their Honours described as "some relevant delinquency on the part of the unsuccessful party". And as McHugh J explained in the same case at [67], the indemnity costs order is made not to punish the unsuccessful party but because "[a]s between the parties, fairness dictates that the unsuccessful party" should bear those additional costs.

49. One circumstance which has generally been seen as capable of demonstrating "relevant delinquency" is the unreasonable failure to accept a Calderbank offer. But even where such an unreasonable failure is shown, it does not follow that the offeror should have all its costs thereafter, and on the indemnity basis. So to conclude would place, on the general costs discretion given to the Court by r s 98(1) of the Civil Procedure Act, a fetter which is neither to be found in its language nor necessary for its operation. The conclusion that it was unreasonable to accept a Calderbank offer may create some presumption, or expectation, that indemnity costs will follow. But, nonetheless, the costs order which is made must reflect the operation of the interests of justice in the circumstances of the particular case.

50. The convenient way to approach the resolution of the costs disputes is to look at each group of offers separately, and to consider the relevant facts and submissions relating to each group separately.

The offers of 1 December 2011

51. For the reason noted at [10], it is necessary to consider only the Calderbank offers made on that date.

52. So far as it is relevant, the terms of the 1 December 2011 Calderbank offers were as follows:

For the purpose of compromise of the proceedings the plaintiff suggests the proceedings be consolidated and the plaintiff is prepared to compromise its claim on the following basis:

1. By verdict and judgment for the plaintiff against Lipman and Big Corp jointly and severally in the sum of $1,000,000.

2. Lipman and BigCorp is to pay the plaintiff's costs of each of the respective proceedings against them separately as agreed or assessed.

The plaintiff's suggestion as to consolidation of the proceedings is for the purposes of compromise only and the plaintiff does not seek to consolidated the proceedings if this offer is not accepted.

In order to be entirely clear the plaintiff is offering to compromise its claim against Lipman and BigCorp by accepting a total payment of $1,000,000 plus costs to be assessed or agreed. This offer is open to be accepted by Lipman or BigCorp jointly or severally.

The plaintiff's offer will remain open for 28 days from the date of this letter. This offer is made in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333 and the plaintiff intends to rely on this letter in relation to costs of the proceedings.

The parties' submissions

53. I shall set out in some detail the submissions that were put. Many of those submissions were common, or relevant, to each of the subsequent offers. I do not propose to recount those submissions when dealing with the subsequent offers.

54. Mr Young submitted that it was relevantly unreasonable for the defendants to refuse to compromise on the offered terms, because by then:

(1) there had been the drawn-out mediation process to which I have referred;

(2) experts had been retained jointly and had reported, both as to the existence of certain classes of defects and as to the cost of rectification;

(3) shortly before the offers were made (and indeed before the formal "mediation" referred to at [29] above), the Owners Corporation had particularised its damages claim in an amount exceeding $2.45 million; and

(4) the Owners Corporation had indicated that its costs were a little under $700,000.00 (of which a little under half was referable to the CTTT proceedings against BIGCORP only), and its disbursements to expert witnesses were about $214,000.00 (of which a little more than half was referable to the CTTT proceedings).

55. Mr Ashhurst submitted that it was not unreasonable for Lipman to refuse the offer. He pointed to the fact that it proposed consolidation of the two proceedings, and an order that his client and BIGCORP should be jointly and severally liable for, among other things, the costs of the consolidated proceedings. That meant, Mr Ashhurst submitted, that Lipman would be jointly and severally liable for costs incurred in the CTTT (where his client was not a party) and, in this court, referable only to the dispute with BIGCORP.

56. Mr Ashhurst submitted that acceptance of the offer would mean that Lipman was liable for costs incurred in prosecuting the compromised claim against NBRS, and what was effectively the abandoned claim against Avri (that claim having been abandoned when Avri went into liquidation).

57. Next, Mr Ashhurst submitted, there were very significant issues which the Owners Corporation either abandoned wholly (including a significant one, relating to alleged defects in the external brickwork, where the amount claimed was approximately $400,000.00), and that it had failed if not entirely than substantially on other significant elements of its claim (for example, relating to alleged waterproofing defects in the windows, where the amount claimed exceeded $1.3 million and the amount awarded, with builder's margin, was $146,000.00). In those circumstances, Mr Ashhurst submitted, acceptance of the offer would mean that Lipman was required to pay the costs of those abandoned or substantially unsuccessful claims.

58. Mr Ashhurst noted that, at the time this offer was made, the only evidence that the Owners Corporation had served was the report of Mr Rabone referred to at [33] above. Mr Ashhurst submitted, in substance, that it was not open to Lipman to make any real assessment of the strength of the Owners Corporation's case, and thus of the merits of accepting any offer of compromise or Calderbank offer, until the Owners Corporation had served all its evidence in chief. That process was not completed until late 2012: almost two years after this offer was made.

59. Further, and as I have indicated, Mr Ashhurst submitted that acceptance of the offer might have required Lipman to pay the Owners Corporation's costs of the mediation. Thus, he submitted, it could not have been unreasonable for Lipman not to accept the offer. There appeared to be two separate aspects to this submission:

(1) as a matter of principle, an order for payment of costs of a proceeding (or in this case, the proceedings) would not extend to the costs of a mediation; and

(2) in any event, having regard to the leisurely way in which the mediation had been conducted, an order that Lipman pay the whole (or one half) of the Owners Corporation's costs of that process would not be reasonable.

60. Mr Bambagiotti adopted Mr Ashhurst's submissions, to the extent that they covered matters common to both defendants. In substance, this meant that Mr Bambagiotti adopted all but the specific submission summarised at [55] above.

61. In addition, Mr Bambagiotti submitted, there were two discrete claims brought by the Owners Corporation against BIGCORP which had failed entirely. One of those claims was brought against it in its capacity as successor to the obligations of FAI under a policy of insurance issued by it in favour of St Hilliers. That claim ultimately went nowhere, because the referee concluded (and I do not think it is now contentious) that none of the relevant defective work had been done by St Hilliers.

62. The second discrete claim to which Mr Bambagiotti referred was one brought by the Owners Corporation against BIGCORP asserting breach of the statutory obligation to indemnify under s 103I of the Home Building Act 1989 (NSW). That claim did not succeed. Mr Bambagiotti submitted that although this claim might not have added much to the duration of the reference (and in essence, the referee so concluded, at R1232), it had been a matter of very great concern to BIGCORP, and one in respect of which BIGCORP had expended considerable resources.

63. Mr Bambagiotti referred also (as did the referee also at R1232) to a claim asserting, against BIGCORP, breach of an alleged common law duty of care. With the greatest of respect to both Mr Bambagiotti and the referee, I have some difficulty in seeing how such a claim is articulated in the relevant version of the list statement. Nonetheless, since everyone seemed to accept that it was there, I proceed on the basis that the claim was understood to have been made, that it failed, and that (as the referee concluded at R1232), it did not add anything of significance to the duration of the reference.

64. It is however necessary to note, as Mr Bambagiotti submitted, that the referee's detailed memoranda of fees show that he had expended more than four days in time writing the relevant sections of his report. Mr Bambagiotti submitted that, on any view, it would be unreasonable to require BIGCORP to indemnify the Owners Corporation for the relevant fees (in excess of $36,000.00).

65. Mr Young submitted, in reply, that it was not relevant to look at success and failure on individual issues, nor, for that matter, at issues that had been abandoned. That was so, he submitted, because the essence of the process of compromise is that the sum offered would encompass all aspects of the offeror's claim, including both those on which it succeeded either wholly or substantially and those on which it failed either wholly or substantially. Thus, Mr Young submitted, it was not appropriate, in the context of assessing the response to a Calderbank offer of settlement, to descend to the detail of success or failure on ultimate issues.

66. Further, Mr Young submitted that to the extent that costs had not been reasonably incurred, it would be open to the defendants to object to their being allowed on assessment. Thus, Mr Young submitted, if (contrary to his principal position) it were correct to say that one should look at success or failure on individual issues, that could be accommodated within the process of assessment. This submission picked up and developed a theme emphasised in correspondence emanating from the Owners Corporation's solicitors in relation to later offers.

67. With reference to the submissions as to costs incurred in prosecuting claims against NBRS and Avri, Mr Young submitted that acceptance of the offer would not expose the defendants to liability for those costs. He submitted, alternatively, that it would be a matter for an assessor, if the parties could not agree, to decide the extent to which any such costs should be allowed against Lipman or BIGCORP. That principle applied also, Mr Young submitted, to Lipman's submission that acceptance of the offer would result in its being ordered to pay costs referable only to the CTTT proceeding, or the claim against BIGCORP.

68. As to the costs of mediation: Mr Young submitted that there was no reason in principle why costs incurred in respect of a mediation should not form part of the costs of a proceeding. He submitted that the authority on which Mr Ashhurst relied (the decision of Bergin J in Mead v Allianz Australia Insurance Ltd [2007] NSWSC 500) was not authority for the general proposition that Mr Ashhurst sought to extract from it.

69. As to the proposition that the mediation had been unduly protracted and expensive, Mr Young submitted that this was a matter that could be dealt with by an assessor.

70. As to the proposition that the defendants were not in a position to assess the offer because the Owners Corporation had not served its evidence in chief, Mr Young submitted that the whole extended process of mediation had been conducted in the way it was (including by the joint retainer of experts) to enable the parties generally to obtain an understanding of the Owners Corporation's case as to defects. In those circumstances, he submitted, it was not to the point that all evidence in chief had not been served at the time this offer was made.

71. I should note that both Mr Young and Mr Ashhurst referred me to various authorities. In some cases, those authorities supported manifestly correct, and uncontested, propositions (for example, the matters set out at [40], [41] above). It does not seem to me to be necessary to refer to those authorities.

72. In other cases, the submission entailed taking a statement made in a fact-dependent decision, clearly relevant only to the particular facts of that decision, and asserting that it embodied some principle of general application. To my mind, that is a misuse of authority. A decided case is at most an authority for the particular proposition that is enunciated in it. Of necessity, that proposition is responsive to the particular facts of the case. It may be accepted that, in decisions of intermediate and ultimate appellate courts, there will be statements of principle explaining the decision, and that those statements of principle should be accorded persuasive, if not definitive, weight (depending upon among other things the identity of the court and the proximity of the statement of principle to the essential point decided). But it does not follow that something said by a judge (or by a court) in a decided case on a particular question of fact can be translated directly to another case involving quite different facts. It is necessary to evaluate the extent to which the facts drove the particular outcome, and then to analyse the extent to which those decisive facts are comparable to (or distinguishable from) the facts of the case under consideration. I regret to say that, in some cases, the submissions of counsel failed to undertake that, as it seems to me elementary, exercise.

73. Unfortunately, it will nonetheless be necessary to pay some attention to what seems to me to have been the misguided citation of, or reliance upon, statements in some of the cases, when dealing with the issues in respect of which those cases were cited.

Decision

74. There are two principal issues that require consideration. One is whether, as a matter of principle, the costs of the proceedings should include the costs of the mediation. The second is the balance of the submissions dealing with the question of unreasonableness.

75. At this stage, I flag that in relation to the formally valid offer of compromise (that made on 21 December 2012), there is a separate issue: namely, whether the process of offer of compromise is really applicable to building defects cases such as this. In essence, it emerged from Mr Ashhurst's submissions that the position for which Lipman contended (and which BIGCORP adopted) was that the offer of compromise mechanism was not really capable of successful application in such cases. I shall deal with that separate dispute when dealing with that offer of compromise.

Costs of mediation

76. I start with the decision in Mead. In that case, Bergin J had fixed a matter for hearing, and at the same time made "consent orders referring [the] matter to mediation", with an order fixing a time by which the mediation should occur. The time was extended. There was a mediation. It was unsuccessful. Shortly after the mediation concluded, offers of compromise were exchanged. The defendant accepted the plaintiffs' offer of compromise. It included a term that "the defendant pay the plaintiff's costs... as agreed or assessed on a party/party basis" (the "Whitney" issue does not seem to have been considered).

77. The plaintiffs claimed that the costs of the proceedings should include costs of the mediation. Bergin J did not accept that submission. Her Honour said at [12]:

... this is really an application for me to construe an agreement that was reached between the parties; that is, whether that in agreeing that "the defendant pay the plaintiffs' costs of the proceedings" the parties intended that such costs included the costs of the mediation.

78. The starting point of her Honour's analysis was that the mediation agreement included an express provision that the parties would bear the mediator's fees equally but that "if the mediation is not successful, then the plaintiffs reserve their rights to make an application... that Allianz pay the plaintiffs' costs of the mediation".

79. By contrast, in the present case the mediation agreement provides only that the parties are to be liable for payment of the mediator's fees in proportions which were intended to be, but which were not, set out. The result, presumably, is that the parties are jointly and severally liable for the mediator's fees, perhaps with a right of recoupment in the event that one of them pays more than its rateable share. That interesting issue need not be perused, because on any view of the present mediation agreement, it contained no reservation of right of the kind found in the agreement considered by Bergin J in Mead.

80. Of that reservation of right, Bergin J said at [10] that when the parties agreed to settle their differences on the basis that the defendant pay the plaintiffs' costs of the proceedings, "any right that was reserved in the plaintiff [sic] to make an application for the costs of the mediation was subsumed into or waived by the agreement that was reached".

81. Her Honour expanded on that construction at [13], observing that:

... the parties were before the mediator sharing his costs equally and, on one view of it, sharing the whole of the costs equally, but if the mediation was unsuccessful there was the residuum; that is, the plaintiffs' reservation of their rights to make an application for a separate order that the defendant pay the costs of the mediation. It seems to me that such right was given up when the defendant agreed to the Offer of Compromise that made no mention of the costs of the mediation. It also seems to me that when the parties entered into the Mediation Agreement, they regarded the mediation as a separate aspect of their litigious process; that is, they saw it as necessary to make a separate application for costs of the mediation.

82. Her Honour observed, further, at [14] that:

... in any event, as a matter of policy, it would not be appropriate to make [the orders sought by the plaintiffs] in circumstances where a consensual order for mediation was made; a Mediation Agreement was entered into; and a compromise was reached between the parties.

83. It seems to me to be clear that her Honour did not lay down any general principle to the effect that an order for costs of proceedings could not or should not include the costs of a mediation undertaken, whether by consent or at the direction of the court, in the course of and with the aim of resolving the issues in those proceedings; nor did she intend to do so. On the contrary, her Honour found in the terms of the particular mediation agreement with which she was concerned an indication that the parties intended that the costs of the mediation should be treated separately from the costs of the proceeding. Having done so, her Honour gave effect to that intention in the costs order that she made.

84. Her Honour's reference, at [14] to the "matter of policy" seems to me to reinforce this view. Her Honour said, as I read those observations, that where the parties had resolved their differences then, on the facts of that case, their agreement should be taken to have dealt with all the issues that the parties thought needed resolution, so that as a matter of policy the court should not seek to add to their bargain.

85. The whole point of the decision in Mead is that the parties' mediation agreement, on its proper construction, recorded the intention and agreement of the parties that the costs of the mediation should be treated as separate from the costs of the proceedings. That is not this case.

86. I do not regard the decision in Mead as authority for the proposition that Mr Ashhurst sought to extract from it, being that summarised at [59(1)] above.

87. As I have noted, the mediation in Mead was the subject of a consent order. In this case, the mediation was likewise the subject of a consent order. On (I think) 30 June 2006, the court made the following orders:

By consent the Court directs:

(1) the proceedings be referred to Mr John Clarke QC as mediator.

(2) the parties arrange to for [sic] preliminary conference with Mr Clarke at the earliest possible time.

(3) the parties are to use their best endeavours to conclude the Mediation on or before 22 September 2006.

(4) proceedings re-listed for Directions on 29 September 2006.

88. There was also a reservation of liberty to apply.

89. Mr Ashhurst submitted that a "direction" was not an order. Thus, he submitted, this case was a fortiori to that considered by Bergin J in Mead.

90. The submission that a command of the court, expressed in a document styled "short minutes of order" and setting out the "terms of orders", is not an order of the court because it is expressed in the language of direction rather than order is bold. It is also, in my view, both inconsistent with relevant provisions of the Civil Procedure Act and the UCPR, and wrong.

91. In dealing with case management, s 58(1) of the Civil Procedure Act refers in para (a) to "any order or direction for the management of proceedings". Sections 61 to 63 of the Civil Procedure Act deal with the "powers of [the] court to give directions". Section 61 authorises directions as to practice and procedure generally. Section 62 authorises directions as to the conduct of a hearing. Section 63 authorises directions with respect of procedural irregularities.

92. Part 4 of the Civil Procedure Act, comprising ss 25 to 34, deals with mediation of proceedings. Section 26(1) empowers the court, if it thinks it appropriate to do so, to order that any proceedings before it, or part, be referred for mediation. In the present case, it seems to me, the court was doing precisely that. The fact that the order was expressed in terms of a direction rather than an order does not detract from that position.

93. In this case, the direction that was given (by consent) undoubtedly embodied the agreement of the parties. Thus, it may be accepted, the reference to mediation was consensual. However, the court did more than note the agreement of the parties to take the matter to mediation (and it is commonplace for the court to "note" agreements made by parties). It added to that agreement the force of the court's direction. The force of that direction is not lessened by the fact that it was one given by consent.

94. Thus, as was the case in Mead (as Bergin J observed), the mediation is to be regarded as one ordered by consent of the parties to be undertaken. To put it another way, the parties, having agreed on the desirability of mediation, asked the court to give its imprimatur to that process, and the court did so by the order, or "direction", to which I have referred.

95. Taking into account the provisions of the Civil Procedure Act to which I have referred (and acknowledging also that the subject of mediation is dealt with in the Rules, in Div 1 of Pt 20 of the UCPR), I conclude that the costs of a mediation undertaken at the order or direction of the court (whether or not made by consent) may fall to be considered as costs of the proceeding in which the mediation was so ordered or directed, unless the parties have agreed otherwise.

96. It is not necessary to consider the situation of a mediation undertaken by consent and without the imprimatur of any court order.

97. For present purposes, it is sufficient to say that I see no reason in principle why the costs of the mediation that the parties undertook, at the (consent) direction of the court, should not be treated as costs of the two proceedings. In this case, there being no indication that the parties intended otherwise, it seems to me that the proper inference to draw, from the fact that they asked the court to direct by consent that they mediate their disputes, is that they intended the mediation to be one undertaken within the scheme of Pt 4 of the Civil Procedure Act and Div 1 of Pt 20 of the UCPR. It follows, in my view, that in principle, and on the facts of this case, it is appropriate to treat the costs of the mediation as costs incurred in the two proceedings.

98. Of course, if an order is made that one party should pay the other's costs of the mediation, it will be a matter for an assessor (if the parties cannot agree) to decide whether particular items of costs or disbursements should be allowed. I am dealing with the principle only, not with its precise application to particular costs claims.

Was it unreasonable for the defendants to refuse the offers?

99. In my view, this question must be answered "no".

100. It is necessary to pay attention to the terms of the offers (see at [52] above). They comprised the following elements:

(1) consolidation of the two proceedings;

(2) verdict and judgment for the Owners Corporation against Lipman and BIGCORP jointly and severally for $1 million; and

(3) Lipman and BIGCORP to pay the Owners Corporation's costs of the respective proceedings against them.

101. The offers made it clear that the suggestion for consolidation was only for the purposes of the compromise, that the Owners Corporation sought only a total payment of $1 million plus costs, and that either or both of the defendants could accept it.

102. This is not a case of separate offers, one as to the claim and one as to costs, each capable of acceptance and independently of the other.

103. The clarification as to costs (namely, that each defendant should pay the costs of the particular proceeding against it) deals with one of Mr Ashhurst's points: namely, that the effect of consolidation would be to make Lipman liable for all costs, including those incurred in the separate proceeding against BIGCORP (which in turn would include costs incurred in the CTTT, before that proceeding was removed to this court).

104. It may also deal with Mr Ashhurst's point that acceptance of the offer would require Lipman to pay costs, incurred in the proceeding against it, that were referable specifically to the claim against NBRS or Avri.

105. However, at the time this offer was made, the only relevant evidence was:

(1) whatever might have been contained in the reports that had been jointly commissioned for the purposes of the mediation; and

(2) the evidence of Mr Rabone in the report that had been served late in 2011, shortly before the formal mediation.

106. Those materials have not been put before the court on the application for costs. Accordingly, the court is in no position to say whether or not those materials would suggest, to an objective and reasonably informed reader, that the proposed settlement was reasonable.

107. It is of course correct to say that the settlement sum offered was inclusive of interest, and made in respect of a claim that, on paper at least, exceeded substantially the settlement amount. But the plaintiff had not supplied any substantial evidentiary basis to justify its claims. And to the extent that it is relevant to take into account what happened, the following points can be made as to some of the ingredients of the particularised damages:

(1) the air-conditioning defects were particularised at $573,000.00. The referee allowed them in the sum of $271,000.00, including margin.

(2) The claim for waterproofing of windows was particularised at in excess of $1.3 million. The referee allowed it at $146,000.00, again including margin.

(3) There was a claim for repair of defects in the external brickworks particularised at up to $400,000.00. That claim was abandoned after the offers of 1 December 2011 were made.

(4) There were relatively minor claims relating to the swimming pool and roller shutter carpark which, including interest, totalled about $23,000.00. Those claims too were abandoned after the offers were made.

(5) There was a claim for rectification of acoustic defects particularised at $227,000.00 (later reduced to $193,000.00). The referee allowed it at $17,000.00, including margin.

108. I accept that the question of reasonableness is not to be assessed with the aid of hindsight. Nonetheless, those matters have significance. They suggest that if the claim had been properly particularised and supported by expert evidence, and if the defendants had had the opportunity of considering it in detail, it would have been apparent that the claim was significantly overstated.

109. It may be accepted, as Mr Young submitted, that one of the purposes of compromise is, as it were, to even out the strong points and weak points in a plaintiff's case, so as to enable an overall resolution to be achieved. But it does not follow from this that assessment of the merits of the proposed resolution is to be undertaken without a greater understanding than, in my view, the defendants had when this offer was made, of what those strengths and weaknesses are.

110. As I have said, I conclude that, as the claim had been particularised, and taking into account the lack of evidentiary support to show why the compromise might be thought to be desirable, the Owners Corporation has not discharged the onus of showing that it was unreasonable for the defendants to reject this offer.

111. On that basis, it is not necessary to consider whether to make the order sought would lead to injustice. If that issue did require consideration, I would in any event decline to make the orders sought essentially for reasons analogous to those at [189] to [198] below.

An offer of 10 February 2012

112. On 10 February 2012, Lipman made a Calderbank offer to settle the claim against it in the sum of $400,000.00, on the basis that there be releases and that it and the Owners Corporation pay their own costs. The letter gave a rationalisation of the basis on which that offer was made. So far as the evidence goes, there was no reply.

An offer of 7 June 2012

113. I deal with this offer only because it assumed some significance in the course of oral submissions. It was not one of the offers as to which the Owners Corporation submitted that non-acceptance provided a basis for awarding indemnity costs. Rather, as I understand it, the offer was said to be relevant to consideration of the offers made on 21 December 2012 and the defendants' non-acceptance of those offers.

114. Nonetheless, this offer does have some separate significance, because it gives point to one of the submissions made by Mr Ashhurst: namely, that it was open to the Owners Corporation to have made individual offers to settle individual aspects of its claim, and that this process is more appropriate in the context of a claim for multiple defects.

115. The letter referred to the claim for defective windows and to reports prepared by Mr West (one of the experts jointly retained by the parties for the purposes of the mediation). Mr West appears to have been retained to consider complaints that the glazing was defective because it allowed water penetration. The letter noted that Mr West had reported that there were five separate water ingress paths. It referred to the testing that he had caused to be carried out, and to Lipman's criticisms of that testing.

116. The letter then said that, to meet Lipman's criticisms, the Owners Corporation was preparing to retain another expert who would carry out the kind of testing that, it seems, Lipman thought was required. It stated that the cost of that testing "will be significant (up to $50,000) as well as the costs of the report...".

117. The letter then continued:

Before engaging an expert to perform the testing referred to above (which will be a significant cost) the plaintiff is prepared to make an offer to settle the claim for defects relating to the windows by accepting payment of $160,000 with such offer open to be accepted for 7 days from the date of this letter. In order to be entirely clear the plaintiff is offering to accept a total of $160,000 for the claim for defective windows. This offer is open to be accepted by both Lipman and BigCorp jointly or severally.

Please note this offer is based on the opinion of John Meredith of Rider Levett Bucknall in his report dated November 2011 at page 20 in which he indicates the cost of repairing 50 windows is $166,000.

If the offer is not accepted then there will be the following consequences:

1. the owners corporation will proceed to retain the expert to carry out the testing of the windows referred to above;

2. if the owners corporation succeeds in establishing the window defects and recovering an amount equal to or greater than the offer above, then the plaintiff will make a separate application for costs of the window claim including costs of the testing on an indemnity basis.

We await your response within the next 7 days.

118. The letter prompted an inquiry from Lipman's solicitors. (I note at this stage that although this and other offers were directed to both defendants, Lipman, through its solicitors, appears to have made the running in relation to the defendants' responses. I proceed on the assumption that, in effect, correspondence on behalf of Lipman should be treated as stating also the position of BIGCORP.)

119. On 15 June 2012, the Owners Corporation's solicitors wrote to Lipman's solicitors referring to a conversation in which an inquiry was made "as to what the plaintiff's position was regarding the costs of the window claimed and, if the offer was accepted, the mechanism of disposal of the claim". It stated that the Owners Corporation's position was as follows:

1. The plaintiff has leave to discontinue the claim in relation to defective windows and it is agreed the plaintiff cannot commence any further proceedings based on the same claim.

2. The plaintiff has leave to file an amended list statement to remove the claim for defective windows from the proceedings.

3. In consideration of the discontinuance it is agreed:

(a) Lipman/BigCorp pay the owners corporation $160,000 for the defective windows;

(b) Lipman/BigCorp pay the owners corporation the sum of $25,000 as a contribution towards the costs of the expert reports relating to the windows as set out in the attached schedule. The total expert costs incurred by the owners corporation in relation to the claim for defective windows is $47,697.10 however some of those reports relate to both the windows and water penetration through the brickwork therefore we have reduced the claim by 50%

(c) In the event that the owners corporation is successful in any of the remainder of the claims in the proceedings then the costs referred to in paragraph 3(b) will not be included in the cost assessment.

(d) In the event that the owners corporation is successful in any of the remainder of the claims in the proceedings then the owners corporation is entitled to the whole of its costs including the costs of the claim for defective windows (there will be no reduction of costs on the basis of the discontinuance of the claim for defective windows).

(e) In the event that Lipman/Big Corp is successful in the remainder of all the claims in the proceedings and obtains a costs order in its favour, Lipman/BigCorp will only be entitled to 80% of its assessed costs to the proceedings (a reduction of 20% for the costs relating to the window claim) and the expert reports relating to window defects will be excluded from any such any [sic] assessment.

Can you please confirm your clients [sic] position as soon as possible and no later than 2 pm Monday 18 June 2012 after which our client will proceed to engage the window expert to carry out the testing referred to in our earlier letter.

120. There was no response to this letter.

121. As I have noted already, the windows claim was for an amount in excess of $1.3 million. The amount allowed by the referee, including builder's margin, was in round figures $146,000.00.

122. Mr Ashhurst relied upon the disparity between the claim and the allowed amount to show that the Owners Corporation was being unreasonable in its claims and hence, at least by inference, that it could not have been unreasonable for Lipman not to accept the offers of settlement. Mr Young submitted that this chain of correspondence showed that the Owners Corporation was prepared to compromise very substantially on elements of its claim.

The offers of 21 December 2012

123. By this time, the Owners Corporation's evidence in chief had been served. There were two offers: an offer of compromise which, it is common ground, complied with the rules, and a Calderbank offer. The offers were made in identical terms to each defendant. Again, Lipman, through its solicitors, appears to have made the running for the defendants, and again I assume that effectively it spoke for both of them.

The offers and subsequent correspondence

124. Each offer of compromise stated that the Owners Corporation offered to compromise its claim against the relevant defendant by verdict and judgment in favour of the Owners Corporation for $1 million. Each was stated to be open for 28 days from its date, and to have been made pursuant to UCPR r 20.26.

125. The Calderbank offers of 21 December 2012 were, omitting formal parts, in the same terms as the offers of 1 December 2011 (see at [52] above), save that the later offers concluded with a new paragraph:

If you require more time to consider this offer, please let us know.

126. After the offers of compromise and Calderbank offers were made, Lipman's solicitors sent an email asking for "an outline schedule of" the Owners Corporation's costs. That was said to be required "[t]o enable Lipman to consider [the] offer".

127. The response to that was an email stating that the office of the Owners Corporation's solicitor was closed, and that there would be a response in the New Year.

128. On 28 December 2012, Lipman's solicitors sent a detailed letter dealing with costs. It asked how the Owners Corporation proposed "that costs are to be agreed and/or assessed given the history of the matter and the following issues".

129. The first issue related to costs incurred in the claim against NBRS and Avri, which claims had been respectively settled and discontinued. The second issue related to the costs of abandoned issues, including water penetration through the external brickwork (the expense of rectification of which had been estimated at $300,000.00 to $400,000.00).

130. The letter then inquired whether it was intended that the costs sought would exclude costs relating to those withdrawn issues, and whether Lipman's costs incurred in relation to them should be set off.

131. The third issue related to costs incurred in respect of earlier attempts to articulate the Owners Corporation's case, through the various iterations of the summons and list statement and the Scott Schedules, and asked how those costs (and costs incurred by Lipman in dealing with the earlier iterations of the claim) would be dealt with.

132. The letter then asked for:

(1) an outline of total costs;

(2) calculations showing how the issues raised would be "addressed and adjusted for"; and

(3) a figure which the Owners Corporation would accept for its costs "as part of its offer of 21 December 2012".

133. There was a response on 14 January 2013. Despite the submissions of Mr Young to the contrary, I do not think that the response was particularly helpful. In general terms, it sought to evade rather than to answer the questions that had been asked.

134. The general proposition, repeated throughout the letter (and throughout Mr Young's submissions) was that the requirement that the defendants pay the plaintiff's costs as agreed or assessed:

... allows the parties to negotiate and attempt to agree costs if the plaintiff's offer is accepted. If matters cannot be agreed then it will be a matter for a cost [sic] assessor to determine any issues in dispute. Unless and until the offer is accepted then we do not see any utility in having these discussions...

You should form your own views in relation to the issues that you have raised and advise your client accordingly.

135. Nonetheless, the letter stated, in relation to the three issues:

(1) as to costs incurred in respect of the claim against NBRS and Avri, the position of the Owners Corporation "is self evident from the terms of the offer". There was then some discussion as to how those costs could be differentiated. That discussion might be thought to suggest that the Owners Corporation did regard those costs as part of the costs of the proceeding, but also accepted that they should not be payable by Lipman.

(2) In relation to the abandoned claims, the letter stated that they had been dealt with by way of amendment "and the costs of the amendments was [sic] dealt with by the Court...". Otherwise, the letter said, those matters could be discussed once the offer of settlement was accepted.

(3) In relation to costs arising out of amendments, the letter stated that the court had made costs orders and that there was no need to revisit those issues.

136. Total costs were said to be in the amount of $880,000.00 in respect of both Supreme Court proceedings and $420,000.00 in respect of the separate proceeding against Lipman in the CTTT up to 2005.

137. The letter declined to indicate what figure the plaintiff might accept, stating that it was premature to do so "unless and until the offer is accepted".

138. In terms, that response dealt with the Calderbank offer. However, I think, having regard to the context in which the inquiry as to costs was made, it is reasonable to infer that the parties treated the letter as stating the Owners Corporation's position, in relation to costs, generally. It is I think obvious that the Owners Corporation intended, if the offers of compromise were accepted, to deal with costs in the way outlined in the correspondence, just as it would do if the Calderbank offers were accepted. In other words, I think, it can be said that in relation to both modes of offer, the Owners Corporation's position was that it would not negotiate on costs until it had an accepted offer of settlement.

The parties' submissions

139. I have outlined at [53] to [73] above the parties' respective submissions on the Calderbank offers made on 1 December 2011. To a large extent, taking into account the different tests posed in relation to offers of compromise under the Rules and Calderbank offers, those submissions may be taken as applicable equally to the latter offers. To the extent that it is necessary to do so, I will take up the further submissions specifically in relation to the offers of compromise with which I am now dealing (and, in the next section of these reasons, with the corresponding Calderbank offers).

Decision - the offers of compromise

140. Consideration of the issue seems to me to require an examination of the position as at the date the offers were made and as at the present time (or as at the time judgment was entered). The former is necessary, because the service of the offers of compromise brought into play UCPR r 42.13A (as it stood at the time the offers of compromise were served). This requires an examination of the risks to which the defendants would have been exposed by acceptance of the offers.

Rule 42.13A

141. The second position requires consideration because, obviously enough, the offers having been made and the Owners Corporation having bettered the position offered, r 42.14 is enlivened. It is thus necessary to enquire whether, as the defendants argued, the court should order otherwise, so as to deflect the prima facie costs consequences of r 42.14(2) in the events that have happened.

142. The costs consequences of acceptance of an offer of compromise are spelled out by UCPR r 42.13A. As at December 2012 (and during the currency of the offer) that rule provided, so far as it is presently relevant, that if a defendant accepted a plaintiff's offer, the plaintiff would have its costs against the defendant on the ordinary basis up to the time when the offer was made, unless the court ordered otherwise.

143. The rule has since been amended (with effect from 7 June 2013) in ways that, among other things, remove the discretion in the court to deflect the costs consequences of acceptance by "ordering otherwise".

144. Thus, under the rule as it stood, acceptance of the offer would have rendered each of Lipman and BIGCORP liable for the Owners Corporation's "costs in respect of the claim", unless they could persuade the court to order otherwise.

145. The reference to "the claim" takes one back to UCPR r 20.26(1), dealing with the making of offers of compromise. So far as it is relevant, that rule states that a party may "make an offer to any other party to compromise any claim in the proceedings, either in whole or in part, on specified terms". Thus, when r 42.13A(2) talked of "the plaintiff's costs in respect of the claim", it must be read as meaning "the plaintiff's costs in respect of the claim the subject of the accepted offer of compromise".

146. In this case, the offer of compromise was one to settle, in each proceeding, the whole of the claim against the relevant defendant. The words "the whole of" do not appear in either offer of compromise. Nonetheless, construing each offer in context (including the context of the contemporaneous Calderbank offers) it is plain that each was an offer to that effect. (I deal separately with the terms of the Calderbank offers, but as will be seen when I turn to them, they were offers made "for the purposes of compromise of the proceedings".)

147. Mr Ashhurst submitted that the Owners Corporation had been not just unhelpful, but unreasonable, in the way it responded to Lipman's correspondence on the topic of costs. Mr Young submitted that the Owners Corporation's responses had been appropriate in the circumstances.

148. In essence, Lipman was seeking to obtain an understanding of what costs the Owners Corporation would assert were, and what costs it might concede were not, to be regarded as "costs in respect of the claim" brought by the Owners Corporation against Lipman. I do not think that it was unreasonable for Lipman to seek clarification of this point. On the contrary, I think that it was entirely reasonable for it so to act.

149. I accept the proposition that costs in respect of the claim against Lipman would not include costs separately attributable to the claims made in the same proceeding against NBRS and Avri. I think that this is what the Owners Corporation, through its solicitors, was trying to say, although the letter could have been expressed with more clarity.

150. It may be that costs in respect of the claim against Lipman would refer only to costs in respect of the claim as it was formulated at the time the offer was made and (hypothetically) accepted. But to my mind, this position is not as clear as the position in relation to separate costs of the claims against NBRS and Avri.

151. I do not think that it was a proper answer to Lipman's inquiry to say that because costs orders were made at the time leave was given to amend (including by discontinuing those claims), the issue was no longer current. Nor do I think that it was an appropriate answer to say that these matters could be discussed, or could be decided by a costs assessor. If it were the Owners Corporation's position that, on acceptance of the offer, it would not seek any of its costs in respect of the abandoned claims, it could have stated so clearly and directly. Its reply, on this point, was at best obfuscatory.

152. Further, it cannot be assumed that Lipman had not incurred any costs in respect of those abandoned claims. It might be added, perhaps by way of qualification, that Lipman has not forwarded any evidence to suggest that it did incur costs in respect of those abandoned claims.

153. The Owners Corporation's attitude, certainly in relation to the Calderbank offers and, I think, also in relation to the offers of compromise, was that if the offers were accepted, the question of costs could be negotiated; if the negotiations were unsuccessful, it could be dealt with by an assessor. But in the latter case, what an assessor would be dealing with would be the Owners Corporation's "costs in respect of the claim" that was the subject of the hypothetically accepted offer. If costs were properly to be regarded as part of that claim, then they would be allowed on the ordinary basis. The attitude of the Owners Corporation was that Lipman should take the risk of establishing, either by negotiation or through the process of assessment, that it should not be liable for particular items of costs.

154. The position is even clearer in relation to the mediation. For the reasons I have given, I think that, in the circumstances of this case, the Owners Corporation's costs relating to the mediation process ought to be regarded as costs in respect of its claim against Lipman. Thus, it would be entitled to the whole of those costs, on the ordinary basis, to the extent that an assessor was prepared to allow them. Given the protracted and desultory nature of the mediation process, it is not difficult to see that there might well be some element of wasted or unnecessarily incurred costs relating to the mediation. Again, the Owners Corporation's attitude appears to have been that it was up to Lipman to seek to deal with that, either through negotiation or by assessment.

155. In circumstances where there were very real questions as to the extent of any liability under a costs order, I think that it was unreasonable for the Owners Corporation not to have engaged with the process suggested by Lipman: namely, outlining its attitude in respect of possibly contentious items of costs, and stating a figure that it might be prepared to accept.

156. In circumstances where the Owners Corporation had not dealt with the legitimate questions raised by Lipman, as to the costs consequences of accepting the offer of compromise, I think that it was not unreasonable for Lipman and Bigcorp not to accept the offers.

Rule 42.14(2)

157. Similar considerations apply when considering the issue under r 42.14(2). The question is, should the court order otherwise? One factor relevant to the exercise of that discretion is whether it was unreasonable for Lipman and BIGCORP not to accept the offers of compromise.

158. It has not been suggested that the process of inquiry, as to the costs consequences of acceptance, was undertaken unreasonably or in bad faith; and I have said that in my view, it was reasonable for Lipman to make the inquiries that it did.

159. Equally, and again as I have said, I think that the responses that the Owners Corporation made to Lipman's inquiries were unsatisfactory.

160. To my mind, the failure to engage with the process of inquiry is sufficient to justify the court in ordering otherwise, for the purposes of r 42.14(2).

161. There is separate but compelling reason that justifies this conclusion. Mr Ashhurst, in his written submissions in reply, provided a table that summarised the amount of the Owners Corporation's claims and their ultimate outcomes. The table is accurate, and I have referred already to some of its detail. I set it out:

a.	Waterproofing of Windows	$1,317,399.00	$124,405.00	$21,771.00
b.	Fire Safety other than levels 8 and 9	$198,355.00	$159,428.82	$0.00
c.	Fire Safety levels 8 and 9	$240,245.00	$236,245.00	$0.00
d.	Acoustics defects	$193,261.00	$14,487.00	$2,150.00
e.	Air Conditioning	$555,249.00	$230,732.00	$40,378.00
f.	Level 8 balconies	$111,331.00	$22,425.00	$3,924.00
g.	Balustrades	$22,800.00	$12,400.00	$2,170.00
h.	External Brickwork	$400,000.00	Abandoned
i.	Swimming pool	$18,038.00	Abandoned
j.	Car park (roller shutter)	$4,689.00	Abandoned
	TOTAL	$3,061,367.00	$800,122.00	$70,393.00

162. The point is not the disparity between the dollar value of the claims and their outcomes. It is, rather, that when the offers of compromise were made on 21 December 2012 (the Owners Corporation having by then completed service of its evidence in chief), the Owners Corporation must have incurred costs referrable to claims in respect of which, in substance, it failed. I refer, specifically, to items (a), (d) and (f); and note that in respect of items (e) and (g) the Owners Corporations' success was in one case well under, and in the other a little over, to the extent of 50% only. In addition, there are the abandoned claims.

163. In short, the costs order that the Owners Corporation now seeks would require that the defendants pay all its costs in respect of the claim against each, and to do so on the indemnity basis from 22 December 2012. Thus, the position for which the Owners Corporation contends would require each defendant to pay the costs of the claim against it, on the ordinary or the indemnity basis as the case may be, not only in respect of claims on which the Owners Corporation succeeded wholly or substantially, and not only in respect of claims on which it succeeded partially, but also in respect of claims on which, in substance, it failed. (I do not regard recovery of an amount of $146,000.00, in answer to a claim well in excess of $1.3 million, as anything other than substantial failure on that claim.)

164. In this context, Mr Ashhurst referred to s 60 of the Civil Procedure Act and the decision of the Court of Appeal in Jones v Sutton (No 2) [2005] NSWCA 203.

165. Section 60 of the Civil Procedure Act reads as follows:

60 Proportionality of costs

In any proceedings, the practice and procedure of the court should be implemented with the object of resolving the issues between the parties in such a way that the cost to the parties is proportionate to the importance and complexity of the subject-matter in dispute.

166. Jones was an unusual case. The parties were members of Warringah Council. The appellant claimed that the respondent had defamed him. At trial, the respondent succeeded. On appeal, the Court of Appeal held that the appellant should succeed, and awarded damages of $5,000.00. The appellant had served an offer of compromise before the hearing at first instance, offering (as the then applicable rules permitted) to settle the claim for $1,000.00 together with a costs order in the sum of $88,500.00. The appellant, contending that he had bettered the offer to settle the claim for $1,000.00, sought indemnity costs.

167. The Court of Appeal (Beazley and Santow JJA and Stein AJA) at [19] of a joint judgment, noted, and I think accepted, the appellant's submission that it had been open to the respondent to accept the offer to settle the proceedings by accepting the offer to pay $1,000.00, but not to accept the costs offer. In that circumstance, not having accepted the former offer, the respondent would have been at risk as to whether costs as assessed were likely to be more or less than the specified amount.

168. Their Honours summarised the outcome at [72]:

[72] In our opinion, much of this was unnecessary and the case was, in reality, a relatively straightforward one. It involved 3 short conversations or comments with or heard by a total of 5 people. Given the limited extent of the publication, the jury trial could have and should have been conducted in a much leaner fashion. The evidence and cross examination could have been more constrained were it not for the general animosity that surrounded the proceedings. Addresses could and should have been relatively short. In all the circumstances we consider that the appellant should have costs of the jury trial for 4 days. We would not certify senior counsel's fees as we consider that a defamation proceeding involving a limited publication could have been conducted by experienced junior counsel: see DCR Pt 39 r.17. The appellant should also have his costs of reasonable pre-trial preparation in relation to the jury trial.

169. There was a complicating factor in that case because, as their Honours pointed out at [54] and following, the purpose of the relevant District Court rules under consideration in that case was to facilitate "an early assessment of damages" and, in that context, "the making of reasonable offers of compromise". By contrast, as UCPR r 20.27 makes clear, an offer of compromise under Division 4 of UCPR Pt 20 may be made up until a very late stage in the hearing of the proceedings. Having said that, there is of course a clear interest in the early resolution of disputes, and it cannot be suggested that rr 20.26 and 20.27 cut across, let alone detract from, this clear interest.

170. The essential thrust of Mr Ashhurst's submission presently under consideration is that it was not unreasonable for Lipman to reject, or not to accept, the offer of compromise (and indeed the contemporaneous Calderbank offer) because, at the time each was made, the costs claimed by the Owners Corporation were entirely disproportionate to the extent of their success. This followed, Mr Ashhurst submitted, from the fact that the Owners Corporation had abandoned several claims (including one that was very significant in monetary terms), and had failed, substantially or almost entirely, on other very significant claims.

171. Mr Ashhurst submitted that, in those circumstances, acceptance of any of the offers would have required his client to pay costs incurred in respect of those wholly or substantially unsuccessful claims, or alternatively to undertake the burden (of particular relevance in the case of the valid offer of compromise) of persuading the court to order otherwise.

172. To my mind, this submission should be accepted, at least as to its conclusion. I put the matter that way because I do not think that the decision in Jones can sustain the weight which Mr Ashhurst sought to put on it. Jones was a case very different in its facts, and involving different rules of court. On any view, an expenditure on costs of (as the terms of the offer suggested) almost 90 times the appellant's valuation of his claim, or 18 times the Court's valuation of it, must be regarded as disproportionate. In this case, all that is known is that, at the time the offers were made, the costs incurred by the Owners Corporation were very substantial. At that time, those costs (as they were said to be) exceeded significantly the amount (including interest) for which the appellant succeeded. But, nonetheless, the extent of the disproportion is not on the face of things as gross as that evident in Jones.

173. Nonetheless, the underlying point is clear. The Owners Corporation sought to mount a widespread defects case. That case involved expert evidence in numerous different disciplines. Even on the case ultimately taken to hearing (and referred to the referee for consideration), and allowing for concessions made by Lipman and BIGCORP in the course of the reference hearing, the Owners Corporation succeeded in recovering, before interest, less than 50% of the amount of its claim.

174. The disparity between the amount claimed and the amount for which verdict and judgment were recovered is even greater if one takes into account the various claims that were abandoned as the Owners Corporation's formulation of its case changed from time to time.

175. To my mind, it is obvious that the Owners Corporation must have incurred substantial costs in respect of those aspects of its case on which it failed either wholly (by abandonment), or in all but a nominal sense (for example, the windows defects claim), or substantially (for example, the air conditioning defects claim). It would be unjust, and disproportionate, to require Lipman, or for that matter BIGCORP, to pay costs on a basis which included recovery of costs incurred for those wholly or substantially unsuccessful claims. Nothing in the underlying purpose of UCPR r 20.26 seems to me to require any different outcome.

176. The purpose of the rule is to facilitate the making of realistic offers of compromise. It is correct to say, as Mr Young submitted, that, overall, the offer was "realistic", because (in the case of the first two offers, and a fortiori in the case of the later offers for lesser amounts) the offer was for less than the amount in respect of which, by concession or otherwise, the Owners Corporation ultimately succeeded.

177. I should note in this context that I do not think that it was argued that the extent of success was so marginal that the offers should be regarded as having no real element of compromise (compare Leichhardt Municipal Council v Green [2004] NSWCA 341; Herning v GWS Machinery Pty Ltd (No2) [2005] NSWCA 375; Dean v Stockland Property Management Pty Ltd (No2) [2010] NSWCA 141).

178. But it does not follow, simply because an offer of compromise is "realistic", that a failure to accept it is unreasonable. Nor does it follow, from the fact that an offer of compromise is "realistic", that the discretion embodied in r 42.14(2) will be exercised in favour of the offeror and against the non-accepting offeree. A conclusion that the offer is "realistic" forms the starting point in consideration of the discretion, not the conclusion of that process.

179. Returning to what I said at [43] and following above, an exercise of the costs discretion that is enlivened by the operation of UCPR r 42.14 in the circumstances of this case must be directed, ultimately, by the interests of justice. I do not think that the interests of justice require that a successful plaintiff should have its costs against an unsuccessful defendant, let alone on the indemnity basis, simply because the successful plaintiff has made an offer of compromise and, ultimately, has bettered it. If that were the case, the discretion to order otherwise would not have been given.

180. In substance, I think, the facts of this case show that a party to a building defects case involving multiple and discrete defects should give careful thought to the structuring of any offer of compromise. Of course, the mechanism encompasses a global offer to settle all claims. But, equally, it permits individual offers to settle individual claims. I would not wish it to be thought that I am advocating, in every building defects case, the service of multiple (and perhaps numerous) offers of compromise. I am saying no more than that, in any such case, if a party wishes to use the mechanism of offer of compromise, it should give very careful consideration to the formulation of the offer. I return to this point at [200] to [202] below, in the context of the Calderbank offers.

181. There is one final point to consider. It may be that in the case of r 42.14(2), the discretion to "order otherwise" is of such broad application that (for example) it would empower the Court to make orders that:

(1) the offeror have, from the date of its offer, some but not all of its costs;

(2) some, but not all, of the costs which the offeror is to have be assessed on the indemnity basis;

(3) the offeror pays some, but not all, of the offeree's costs; and

(4) costs be set off.

182. Equally, it seems to me, such outcomes would not be outside the general discretion as to costs afforded by s 98(1) (applicable in the case of unaccepted Calderbank offers where the offeror exceeds the position offered).

183. However, the Owners Corporation did not put its case on such a basis. Neither Lipman nor BIGCORP sought to respond to such a case. Accordingly, I do not think that it is appropriate to consider either whether costs orders of those kinds could be fashioned or whether this would be an appropriate case to fashion some such orders.

Conclusion - the Court should order otherwise

184. For the reasons given, in the circumstances of this case the interests of justice require the court to "order otherwise", for the purposes of r 42.14(2).

185. I return at [237] and following below to the question of what costs order the court should make.

Decision - the Calderbank offers

186. Much of what I have said, relating to the offers of compromise of 21 December 2012, applies equally to the Calderbank offers of that date.

187. I acknowledge that the position is somewhat different in respect of Calderbank offers, because the costs consequences of the making and non-acceptance of a Calderbank offer only arise for consideration if that non-acceptance was "unreasonable". But it seems to me, for the reasons I have given, that even if the acceptance is to be characterised as unreasonable, it would not follow that the offeror should have all its costs, let alone have them on the indemnity basis. The discretion as to costs (Civil Procedure Act, s 98(1)) is not to be limited or constrained by the mechanistic application of formulae derived from decided cases which elaborate on the consequences of the success or failure of what might be called private, or unregulated, offers to settle proceedings.

188. At [99] to [110] above, I stated why, in my view, it was not unreasonable for the defendants not to accept the Calderbank offers of 1 December 2011. It might be thought that, since the earlier and later offers were in the same terms, the later offers could be dealt with in the same way. However, there are some factual matters that might suggest otherwise.

189. First, after the offers of 1 December 2011 had been made and not accepted, the Owners Corporation amended its list statement and Scott Schedule (see at [31] and [34] above). In substance, by 21 December 2012, the Owners Corporation's case, as pleaded and particularised, was the case that it took to hearing. Thus, among other things, the defendants knew that certain of the claims had been abandoned.

190. The second factual matter of importance is that, by 21 December 2012, the Owners Corporation had served its evidence in chief.

191. It follows that, by 21 December 2012, the defendants were well aware both of the pleaded and particularised case that the Owners Corporation propounded, and of the evidence on which it proposed to rely to prove that case. The defendants were in a much better position to assess the merits of the offers than they had been a year earlier.

192. However, the essential point remains the same: acceptance of the offer would have exposed the defendants to a liability to pay the Owners Corporation's costs of the respective proceedings.
193. By 21 December 2012, the defendants were aware that those costs must have included amounts referable to the abandoned claims. In essence, acceptance of the offers would have required the defendants to take the chance that, on any assessment of costs, items of costs and disbursements referable to the abandoned claims might be allowed.

194. Further, by 21 December 2012, the defendants were aware that the Owners Corporation had been prepared, some six months earlier, to settle the windows claim (valued in the Scott Schedule at in excess of $1.3 million) for $160,000.00. Mr Young submitted that this demonstrated, and the defendants must have understood, that the Owners Corporation was prepared to compromise on the windows claim. It followed, he submitted, that in assessing the offers made on 21 December 2012, the defendants should have taken into account that there was likely to be a very significant element of compromise within it, particularly as to the windows claim.

195. I accept that the offer of 7 June 2012 would have indicated to the defendants that at that time, the Owners Corporation was prepared to compromise on the windows claim. However, given that the windows claim was pressed in full in the version of the Scott Schedule that was served shortly before the 21 December 2012 offers were made, the defendants would also have understood, in my view, that the Owners Corporation was pressing that claim in full and continuing to incur costs (including for expert witnesses) in respect of it.

196. In context, it seems to me that by 21 December 2012, the events in question (regarded objectively) indicate not so much a willingness to compromise on the windows claim (except in so far as some element of compromise on it was wrapped up in the offers of 21 December 2012) but, rather, a hardening of the Owners Corporation's attitude to that claim.

197. In the result, it is my view that the reasons for ordering otherwise, in respect of the offers of compromise served on 21 December 2012, justify, equally, the conclusion that it was not unreasonable for the defendants not to accept the Calderbank offers. It follows that the making and non-acceptance of those offers should not engender any adverse costs consequences.

198. Further, as I said at [175] in the context of the offers of compromise, it would be unjust and disproportionate to require the defendants to pay costs on a basis which included recovery of costs for wholly or substantially unsuccessful claims.

199. It may be, as Mr Young submitted, that these were matters that could have been dealt with either by negotiation or through the process of assessment if the Calderbank offers had been accepted. But as I have said already, that approach would have exposed the defendants to the risk that neither of those avenues might succeed in ameliorating the position to which, prima facie, acceptance of the Calderbank offers would have exposed them. In this context, I regard as significant the failure of the Owners Corporation to respond in any meaningful way to what I have said were the entirely reasonable requests for information made by Lipman (and, I think, not just on its own behalf but on behalf of BIGCORP also).

200. Mr Ashhurst appeared to submit, or to accept as a consequence of one aspect of his submissions, that in the case of a building claim seeking damages for numerous disparate defects, the global offer of compromise or Calderbank offer mechanisms are inappropriate. It may be that in such cases the plaintiff should give consideration to serving offers to settle discrete aspects of its claim. This is certainly authorised in the case of offers of compromise (see r 20.26(1) - "an offer ... to compromise any claim in the proceedings"). There is no reason to think that the Calderbank offer mechanism is less flexible or more rigid.

201. It seems to me that in a case such as this, a party who wishes to encourage settlement discussions should give consideration to individual claims that are brought in the proceedings, and offer to settle those individual claims on whatever basis may appear to be appropriate.

202. However, even if this were, either in the context of a particular dispute or more generally in the context of building defects claims, an appropriate route to follow, it cannot exclude the availability of a general offer of compromise, or Calderbank offer. Nor can it dispense the Court from considering the consequences that follow from the making of such offers, the failure to accept and the ultimate outcome. But where such a general offer has been made, and where the offeror has enjoyed, as has the Owners Corporation in this case, very mixed fortunes in respect of individual components of the offer, each of which might have specific and severable costs attributable to it, it may be easier to see, as I think it can be seen in this case, that an order for indemnity costs would engender very considerable injustice.

203. In the present case, as I have said, I think it would be unjust to order the defendants to pay all, let alone on the indemnity basis, the Owners Corporations' costs from the date when the Calderbank offer was made (or the last date limited for its acceptance).

204. I conclude that the defendants' failure to accept the Calderbank offers of 21 December 2012 should not result in their incurring any liability for indemnity costs after the date limited for acceptance of those offers.

The offers of 24 May 2013

205. The offers of 24 May 2013 were in terms that were not relevantly distinguishable from the Calderbank offers of 1 December 2011 (see at [52] above), with the important exception that the settlement amount proposed was $800,000.00, not $1,000,000.00.

206. In a separate letter sent on the same day, said to be "without prejudice" (those words not being qualified by the words "except as to costs"), but tendered without objection, the Owners Corporation's solicitors stated that:

(1) their client's costs in the CTTT proceeding were about $420,000.00;

(2) costs incurred in the two Supreme Court proceedings were approximately $1.2 million; and

(3) "the Owners Corporation is prepared to accept $2,000,000 inclusive of costs in full and final settlement of its claims against Lipman and BIGCORP in the abovementioned proceedings. This offer is open to be accepted by Lipman or BIGCORP jointly or severally".

207. The letter concluded by stating that if the offer were accepted then there should be a deed of settlement and release, and the proceedings should be discontinued when the settlement amount was paid.

208. On 30 May 2013, Lipman's solicitors wrote to the Owners Corporation's solicitors. The letter made reference to Lipman's earlier offer made in February 2012 (see at [112] above) and set out in some detail the recent history of the proceeding. That detail, which was not entirely uncontentious, referred to the abandonment of a number of claims over the years, and to the complex procedural history to date. It then turned in some detail to what appeared to be the remaining disputed claims, and set out Lipman's position in respect of some of those claims.

209. I do not propose to set out the detail of the letter. It is sufficient to note that, in the result, Lipman acknowledged that it conceded liability for some $248,000.00 in respect of defects.

210. The letter then turned to the costs claimed in the second of the letters of 24 May 2013. It made the point that the costs component (by inference, $1.2 million) was substantially more than the amount proposed for settlement (and very much more than the amount of Lipman's acknowledged liability).

211. In the result, the letter put an offer that Lipman pay $400,000.00 to settle the Owners Corporation's claim, and that each of the parties should pay their own costs.

212. It does not appear that this letter should be regarded as setting out also BIGCORP's attitude to the offers of 24 May 2013. So far as the evidence goes, BIGCORP did not respond to those offers.

The parties' submissions

213. Mr Young submitted that his client's position, in respect of this offer, was a fortiori compared to its position in respect of the previous offers. That was so, he submitted, because the amount for which the Owners Corporation was prepared to settle its claim had been reduced from $1 million to $800,000.00 (exclusive of costs).

214. Mr Ashhurst submitted that it was not relevantly unreasonable for Lipman to refuse the offer, because, as the correspondence made clear, acceptance of the offer would have exposed it to a costs claim of the order of $1.2 million. That amount of costs, he submitted, was disproportionate to the amount at which the Owners Corporation was prepared to value its claim. It followed, Mr Ashhurst submitted, that there must be significant elements of wasted costs for which, nonetheless, the Owners Corporation was seeking recoupment.

215. Mr Bambagiotti adopted those submissions, and noted that in his client's case, the disproportion between the amount offered and the amount of costs claimed was even greater, because of the inclusion of a further $420,000.00 relating to the CTTT proceeding. (Of course, that is so in respect of the Calderbank offer, but is not relevant to the "without prejudice" offer inclusive of costs made on the same date.)

216. Further, Mr Bambagiotti submitted, the offer had been made too close to the hearing (before the referee) to afford the parties sufficient time to consider it. He referred to my decision in Ballard v Multiplex [2012] NSWSC 825 and submitted that these offers were a distraction to the preparation of a complex case.

Decision

217. I start with the "Ballard" point. It is correct that the offers of 24 May 2013 (and the offers made some days later, on 4 June 2013) were served after the hearing had commenced before Bergin CJ in Eq and only shortly before the commencement of the hearing before the referee. Nonetheless, the facts of this case are totally different from the facts in Ballard. Mr Ballard was an individual litigant, of no great means, pursuing claims of very great factual and legal complexity against determined and well-resourced opponents, who were determined to fight every issue to the end. The issues in this case were factually demanding. But they do not begin to approach the complexity of the issues in Ballard.

218. Further, as the correspondence shows, Lipman at least was able to consider the offers on their merits and to make a very detailed and reasoned response to them. There is no reason to think that BIGCORP was incapable of doing the same if it wished.

219. The point made in Ballard, which arose because of the particular facts of that case, has no application on the facts of this case. Before I leave the facts of this case, I should note that the response of Lipman's solicitors to the subsequent offer (of 4 June 2013) was expressly written on behalf of both defendants.

220. I return to the more significant question: was it relevantly unreasonable for the defendants to refuse the offers of 24 May 2013? In my view, this question must be answered "no".

221. If one considers the two offers of 24 May 2013, it is clear that the Owners Corporation had incurred costs at least 50% greater than the amount at which it was prepared to settle its claim. It is equally clear that at least some part of those costs must have related to claims that had been abandoned, or to claims that (as events showed) enjoyed either minimal or less than substantial success.

222. I accept that the settlement figure proposed for the claim overall - $800,000.00 - was eminently reasonable. But what makes it difficult, if not impossible, to characterise the failure to accept that offer as unreasonable is the Owners Corporation's continued insistence on having a much larger sum paid for costs; or alternatively, its continued insistence on putting the defendants to the risk that a much greater sum would be allowed for costs on any assessment.

223. Essentially, notwithstanding the progressive and reasonable reduction in the amount for which the Owners Corporation was prepared to settle the claim, its attitude in respect of costs means that it was not unreasonable for the defendants to reject the offer.

224. This may very well be a case where the Owners Corporation could have adopted the mechanism of making separate Calderbank offers: one to settle the claim and one to settle the costs consequences, with each capable of acceptance independently of the other. But it did not do so, and its entitlement (if any) to special costs orders is to be assessed by reference to what it did do, not by reference to what it might have done.

The offer of 4 June 2013

225. This offer was responsive to Lipman's solicitors' letter of 30 May 2013. The essence of the offer was as previously put, save that the amount for which the Owners Corporation was prepared to settle its claim was reduced from $800,000.00 to $500,000.00. There was no accompanying letter offering to settle the claim (so reduced) and the costs question jointly, as had been the case 11 days earlier.

226. Lipman's solicitors' responded (as I have noted, on behalf of Lipman and BIGCORP) seeking either a breakdown of costs or an indication of the amount that the Owners Corporation would accept for costs "so that both Lipman and BIGCORP can properly assess your offer".

227. Leaving aside further argumentative and uninstructive assertions, the letter then proposed settlement on the basis that the defendants would pay between them $600,000.00 to settle the claim, and that each party would pay their own costs to date.

228. That counteroffer was rejected.

The parties' submissions

229. The same submissions were put as had been put in respect of the previous offers.

230. Mr Ashhurst submitted, further, that having regard to the timing of this offer (4 June 2014) and the failure either to particularise the costs claimed or to specify a sum that the Owners Corporation would accept for costs, the offer was not one made in good faith as a genuine attempt to reach a negotiated settlement. He submitted that the offer should be regarded as having been made only to attempt to trigger a liability for costs or indemnity costs.

Decision

231. Notwithstanding the progressive reduction in the amount for which the Owners Corporation was prepared to settle the claim, the problem remains that it was seeking an amount of costs very much in excess of the settlement figure, and declining to provide either a breakdown of its costs or an indication of a figure at which it might compromise its claim for costs.

232. In the circumstances, and taking into account the time at which the offer was made, I conclude, essentially for the reasons given in respect of the previous offer, that it was not unreasonable for the defendants to reject the offer of 4 June 2013.

233. Further in my view, the characterisation which Mr Ashhurst attributed to the offer of 4 June 2013 - namely, that it was made to trigger a costs consequence, rather than as a genuine attempt to settle the dispute - should be accepted, for the reason Mr Ashhurst gave.

234. The Owners Corporation's solicitors had indicated that its total costs were of the order of $1.6 million (and that was at a time before the offer of 4 June 2013 was made). They had indicated, further, that the Owners Corporation would effectively compromise its costs claim for $1.2 million. However, they had given no justification for this. They had not indicated a figure at which the Owners Corporation would be prepared to settle its costs claim if the offer of 4 June 2013 were accepted. And they had not responded to what in my view were the legitimate questions asked as to the extent to which the costs claimed were referable to (for example) abandoned issues.

235. Were it necessary to do so, I would conclude for this reason also that the defendants' rejection of the 4 June 2013 offers does not engender any adverse costs consequences for them.

Conclusion - indemnity costs

236. In my view, the Owners Corporation has not made good its claim to an order for indemnity costs.

Should costs follow the event?

237. In a sense, the preceding analysis presumed that the Owners Corporation had made good its asserted entitlement to an order, in accordance with UCPR r 42.1, that costs should follow the event. But that presumed entitlement was very much in issue.

The parties' submissions

238. Mr Young submitted that his client had succeeded, and thus that the rule was engaged. He submitted, further, that it was not appropriate to look at the extent of its success and failure on discrete elements of its claim.

239. Mr Ashhurst and Mr Bambagiotti referred to authorities which, in their submission, stood for the proposition that even a successful plaintiff might not get the whole of its costs if it had failed, wholly or substantially, on significant elements of its claim. They contended that those authorities supported (if they did not dictate) the conclusion that the Owners Corporation should not have all its costs.

240. Mr Ashhurst and Mr Bambagiotti submitted further that their respective clients should have their costs of the issues on which they succeeded wholly or substantially.

Decision

241. In Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd [2008] NSWSC 1423 (one of the decisions cited by Mr Ashhurst), Hammerschlag J referred to the general rule (r 42.1) at [28] and, at [31], to cases where application of the general rule had been displaced. For convenience, and because I agree with and adopt his Honour's analysis of the principles, I set out [28] to [32] of his Honour's reasons:

[28] Part 42 r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") provides as follows:

"Subject to this Part, 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 order should be made as to the whole or any part of the costs."

[29] The general rule that costs follow the event and that a successful litigant receives his costs in the absence of special circumstances justifying some other order is of very long standing: see eg Ritter v Godfrey [1920] 2 KB 47.

[30] The general rule can, in the discretion of the Court, be displaced in appropriate cases. Relevant authorities have been recently and conveniently collected by White J in Short v Crawley (No 40) [2008] NSWSC 1302 at [25]- [32].

[31] Examples of instances where the general rule may be displaced include the following:

a a costs order in favour of a successful party can be modified to reflect its failure on particular issues even if the successful party did not act unreasonably in raising those issues: Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (Supreme Court of New South Wales, Hodgson CJ in Eq, 3 June 1998, unreported, BC9802305 at 10-11);

b if a party unreasonably pursues or persists with points which have no merit, such conduct will constitute a consideration relevant to the ordering of costs even in circumstances where that party is generally successful: Oshlack v Richmond River Council [1993] HCA 11; (1998) 193 CLR 72 at 122;

c conduct in relation to the matter may be discreditable to an extent warranting a party being deprived of costs: Jamal v Secretary Department of Health (1988) 14 NSWLR 252 at 271;

d where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed: Hughes v Western Australian Cricket Association (Inc) (1986) 8 ATPR 40-748 at 48,136;

e where the proceedings involve multiple issues departure from the general rule may be warranted particularly where the losing party has succeeded on issues which occupied significant time. Nevertheless the application of the general rule may involve hardship where a party succeeds on some issues but fails on others particularly where the losing party succeeds on some issues. However unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Ritchie's Uniform Civil Procedure NSW at [42.1.15]; Waters v PC Henderson (Australia) Pty Ltd (New South Wales Court of Appeal, 6 July 1994, unreported, BC9404952 at 5); Short v Crawley (No 40) at [27]-[28];

f a successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the other party's costs of them: Hughes v Western Australian Cricket Association (Inc) at 48,136.

[32] In Hughes v Western Australian Cricket Association (Inc) Toohey J (in a passage cited by White J in Short v Crawley (No 40)) referred to what was said by Jacobs J in Cretazzo v Lombardi (1975) 13 SASR 4 at 12 in the following terms:

"His Honour sounded what he described as 'a note of cautious disapproval' of applications to apportion costs according to the success or failure of one party or the other on the various issues of fact or law which arise in the course of a trial. His Honour commented:

'But trials occur daily in which the party, who in the end is wholly or substantially successful, nevertheless fails along the way on particular issues of fact or law. The ultimate ends of justice may not be served if a party is dissuaded by the risk of costs from canvassing all issues, however doubtful, which might be material to the decision of the case. There are, of course, many factors affecting the exercise of the discretion as to costs in each case, including in particular, the severability of the issues, and no two cases are alike. I wish merely to lend no encouragement to any suggestion that a party against whom the judgment goes ought nevertheless to anticipate a favourable exercise of the judicial discretion as to costs in respect of issues upon which he may have succeeded, based merely on his success in those particular issues.'"

242. The approach of apportioning costs may have some appeal in building cases where a plaintiff makes numerous claims for alleged defective work. It may be, although I express no concluded view, that the traditional reluctance to apportion costs might not apply with full rigor to such cases. I should add that if this is so, it is very much an exception to the general position, which is to discourage "[t]endentious costs applications that seek to qualify, vary or overly refine the general rule" (see Charltons CJC Pty Ltd v Fitzgerald (No 4) [2014] NSWSC 523 at [4]).

243. One reason for looking at apportioning costs in defects cases is shown by the facts of this case. A plaintiff's insistence on recovering (at least on the ordinary basis) the whole of its costs may work very substantial injustice to defendants who have devoted significant resources, and no doubt incurred significant costs, in defending individual claims made by the plaintiff. It is not difficult to see why. First, it would effectively compensate the plaintiff for its unsuccessful claims. Secondly, it would penalise the defendants by denying them of recompense for the costs they had devoted to their successful defence of those particular claims.

244. An extreme example of this, and one on which Mr Ashhurst also relied, may be found in my own decision on costs in CJD Equipment Pty Ltd v A&C Constructions Pty Ltd [2010] NSWSC 502. It is unnecessary to do more than repeat what I said at [9] to [11] of those reasons:

[9] I deal first of all with the position up to 20 August 2009. In my view, it would be unjust in the extreme to require A & C to pay the whole of CJD's costs (on the ordinary basis) for that period. First of all, as I have pointed out, the amount that was recovered was minimal in comparison to the total extent of the claim. That is because CJD asserted, from start to finish in these proceedings, that it was entitled in substance to have the entire building, including its external pavement, reconstructed. On the findings of fact that I made, its entitlement was limited to the repair of some defects in the internal pavement and a fraction of the cost required to secure compliance with relevant requirement of the BCA.

[10] It is open to those who wish to do so to drive Rolls Royces, and it is open to those who wish to do so to conduct litigation in a similar fashion. But it does not follow that those who drive Rolls Royces are entitled to be subsidised by others for the costs of doing so. Nor does it follow that those who choose to run litigation in a "Rolls Royce" fashion should expect to recover the costs incurred by them in doing so in the event that they succeed.

[11] In my view, considerations of proportionality alone would make it entirely unjust for CJD to recover anything beyond a relatively small fraction of its costs for the period with which I am presently concerned.

245. In this case, it would be unjust, in my view, to order the defendants to pay all the Owners Corporation's costs of the respective claims against them, even on the ordinary basis. Such an order would require the defendants to pay costs incurred by the Owners Corporation in respect of claims on which the Owners Corporation's success had been either nominal or, at best, less than substantial. And, in the absence of any order to the contrary, it might even require the defendants to pay the Owners Corporation's costs of abandoned claims.

246. Further, the order would leave the defendants out of pocket for what has been in some cases their almost entire, and in many cases substantial, success on particular claims. A failure to recognise this, and to reflect it in some way in the costs orders to be made, would work injustice on the defendants.

247. At the same time, to attempt to apportion costs between the various claims, in the way that the orders proposed by the defendants would do, would produce nightmares for any assessor faced with the unenviable task of determining what costs might be payable pursuant to such orders. I think there comes a time at which precision has to give way to reality. To adopt what Pembroke J said in Charltons at [8], the defendants' approach is to slice and dice the litigation into discrete components, seeking numerous separate costs orders. His Honour did not think that it was appropriate to do so in the circumstances of that case. I do not think that it is appropriate to do so in the circumstances in this case.

248. Any costs order needs to reflect:

(1) the Owners Corporation's substantial success on some of the claims made by it (including claims that, ultimately, were conceded before the referee);

(2) the fact that it succeeded less than substantially on other claims (which might be taken to suggest that those claims were exaggerated or inflated);

(3) the fact that in substance, if not entirely, it failed in respect of yet other claims (as to which the preceding parenthetical comment applies a fortiori); and

(4) the fact of the abandoned claims.

249. Thus, I think, the interests of justice require that the costs order should reflect, in a practical way, the extent to which the parties enjoyed success and failure on the individual defects issues that were the subject of the Owners Corporation's claim. However, it should do so in a way which seeks to minimise the further time and cost involved in bringing this long-running litigation to finality.

250. The defendants produced various tables, based on analyses of the transcript of the reference hearing and the referee's memoranda of fees. Those analyses were intended to show the time devoted to particular issues, and thus to provide some guide to any apportionment of costs. I am unpersuaded, as was Hammerschlag J in Corbett Court, of the utility of what his Honour at [50] referred to as "the statistical approach". Nonetheless, I do accept that it shows that any order giving the Owners Corporation the whole or substantially the whole of its costs would be unjust in the extreme.

251. To my mind, taking into account (to the extent that they provide any guidance) the analyses prepared by the defendants' solicitors, and looking at the way the issues raised by the Owners Corporation were dealt with, the appropriate order is that the defendants should pay 40% of the Owners Corporation's costs of the claims made against them, and that those costs should be assessed on the ordinary basis.

252. At first blush, the percentage may seem less than generous, and less than reflective of the degree of success that, overall, the Owners Corporation enjoyed. But I have taken that approach because I intend the percentage selected to reflect what would otherwise have been some offsetting of costs. A more detailed analysis might have led to a situation where the Owners Corporation had a higher percentage of its costs, but where the defendants had their costs of particular issues, with those costs being set off. The percentage figure that I have selected reflects, although in a way which is not really capable of any further degree of rational analysis, such an offsetting process.

Interest on costs

253. The Owners Corporation sought an order for interest on such costs as were ordered in its favour. The defendants opposed this. They relied on the decision on the Court of Appeal in Illawarra Hotel Company Pty Ltd v Walton Construction Pty Ltd (No 2) [2013] NSWCA 211; (2013) 84 NSWLR 436.

254. In addition, Mr Ashhurst submitted that there should be no order made in any event unless there were some evidence that costs had actually been paid. He relied on what Handley AJA had said in Drummond and Rosen Pty Ltd v Easey (No 2) [2009] NSWCA 331.

255. As to the last point: Handley AJA dissented on the issue of interest on costs and what his Honour said at [52] (which was the paragraph on which Mr Ashhurst relied) does not represent the majority's reasons.

256. Macfarlan JA (with whom, on this point, Tobias JA agreed) said at [3] that:

... it is unnecessary for there to be evidence of the date or dates on which the costs concerned were paid for an order for the payment of interest to be made... .

257. However, in my view, the decision in Illawarra Hotel (No.2) presents a more formidable obstacle. The Court (Meagher, Barrett and Ward JJA) gave a joint judgment. At [37], their Honours noted the submission for the opponent that:

... the question of interest on costs cannot be determined without an exhaustive consideration of the circumstances that caused the proceedings to be protracted by the serving of evidence on unsuccessful issues, futile amendments to pleadings, issues not pursued at trial and matters relevant to McDougall J's observation concerning "the evident animosity between the parties and the lengths to which each has gone to buttress its case".

258. At [38], their Honours said that the submission should be accepted:

That submission must be accepted. A party who contends that there should be an order for interest on costs must do more than point to the fact that the proceedings were protracted and that it had to outlay moneys on its own costs over a long period. The reasons for the protracted nature of the proceedings are of obvious relevance. To take a hypothetical example, one can imagine a case in which one party deliberately seeks to prolong proceedings with an eye to some collateral benefit of its own for which it is quite happy to pay the price of being out of the money it progressively outlays for costs. That hypothetical case can be contrasted with another in which a party has made strenuous effort to expedite matters and to avoid all delay with a view to the earliest possible trial but has been frustrated in those efforts by actions of the other party. A middle course is where each party acts with reasonable diligence and dispatch but the nature of the proceedings and their subject matter is such as to prolong them. A court might well take different attitudes to applications for interest on costs in these hypothetical cases.

259. At [39], their Honours stated:

In the absence of some sufficiently clear explanation of the reasons why this litigation preceded as it did, in a timing sense, there would be no sound basis for exercise of the discretion concerning interests on costs... .

260. In the present case, there is no evidence as to the circumstances that caused the proceedings to be protracted. There is no explanation of why the litigation proceeded as it did, in a timing sense.

261. The decision in Illawarra Hotel (No.2), insofar as it deals with interest on costs, appears to be inconsistent with other decisions of the Court of Appeal. For example, in Drummond and Rosen, Macfarlan JA (with whom, on this point, Tobias JA agreed) said at [4]:

In the absence of any countervailing discretionary factor (of which there appear to be none in the present case), it is appropriate that an order for interest on costs be made to compensate the party having the benefit of a costs order for being out of pocket in respect of relevant costs which it has paid (Lahoud v Lahoud [2006] NSWSC 126 at [82-3] per Campbell J).

262. The conflict has been recognised, but not resolved, in more recent decisions of the Court of Appeal. See Zepinic v Chateau Constructions (Aust) Ltd (No 2) [2014] NSWCA 99 at [43], [44]; DSG Holdings Australia Pty Ltd v Helenic Pty Ltd (No 2) [2014] NSWCA 142 at [5], [6].

263. The Court in Zepinic stated that the Court of Appeal in Illawarra Hotel (No.2) "did not refer, and appeared not to have been taken, to Drummond and Rosen...".

264. Counsel in the present case did not put submissions on the apparent conflict in decisions of the Court of Appeal that are directly in point.

265. If the particular question were not the subject of authority binding on me, so that I was free to deal with it, I would consider that:

(1) it is inappropriate for the general discretion to order interest on costs, conferred by s 101(4) of the Civil Procedure Act, to be trammelled by some fetter on its exercise such as that there should be something more than "the fact that the proceedings were protracted and that [the applicant for interest] had to outlay moneys on its own costs over a long period", and

(2) the discretion should be exercised so as, objectively, to suit the interests of justice on the facts of the particular case, taking into account of course the evident compensatory function that s 101(4) is intended to perform.

266. However, I do not think that it is open to me to deal with the matter on the basis that there is no binding authority on the point.

267. To my mind, it is for the Court of Appeal to decide whether what was said in Illawarra Hotel (No.2) at [37] to [39] should be regarded as having been decided, as it used to be said, per incuriam. It seems to me that, as the most recent decision of the Court of Appeal in point lays down the proposition to which I have referred at [257] to [259] above, I am bound to deal with the question of interest on costs in that way.

268. I conclude that I am bound by the decision in Illawarra Hotel (No.2) to refuse the application for interest on costs.

269. In any event, if the matter were to be decided on the basis of what Macfarlan JA had said in Drummond and Rosen (No.2) at [4] (and, I might add, similar views had been expressed on numerous prior occasions), I would observe that on the facts of this case, it would be appropriate for there to be some explanation of what seems to be extraordinary delay between the commencement and conclusion of the proceedings before an order should be made that the Owners Corporation should have interest on the appropriate percentage of its costs over the whole of that period.

270. To put it another way, I think that this is a case where, on the face of things, the delay is so great that the court should have some understanding of the reasons for the delay before making an order, unlimited as to time, for the payment of interest on costs. To make that order in the absence of such an explanation might well visit injustice on the defendants, by rendering them liable in interest for periods of delay solely attributable (and I am speaking hypothetical) to the Owners Corporation. Returning to the language of Drummond and Rosen (No.2) at [4], unexplained and extreme delay might well be seen to raise a "countervailing discretionary factor", giving rise to the need for explanation before the order sought could be made.

Conclusions overall

271. Subject to the exclusion with which I deal at [282] below. The Owners Corporation should have 40% of its costs of each proceeding, to the extent that those costs were incurred against the relevant defendant. To the extent that there have been costs orders made in favour of the defendants in either proceeding, which costs orders have not been satisfied by payment, costs should be set off. There should be no allowance for interest on costs.

272. As I noted at [142], [143], above, UCPR r 42.13A, as it stood at times relevant to the offers of compromise served on 21 December 2012, was amended. The effect of the amendment was to remove the court's discretion to deflect the costs consequences of acceptance by ordering otherwise.

273. If the offers of compromise of 21 December 2012 had been made in circumstances where r 42.13A read as it now does, that rule would have put up a very substantial barrier to acceptance of the offer. Under the rule as it stood at the relevant time, the defendants could have accepted the offer and taken their chances on persuading the court to order otherwise. Under the rule as it presently stands, that course is not open.

274. It would follow that, in the absence of the discretion, acceptance of the offer would render the defendants liable for all costs that might be allowed on assessment. In particular factual situations, that could operate as a disincentive to acceptance of an offer of compromise.

275. In my respectful view, the Rules Committee should give further consideration to r 42.13A, with a view to reinstating the discretion to order otherwise.

276. Another matter that emerges from the overly long reasons that precede these observations is that the offer of compromise mechanism may not be an effective instrument for the global resolution of building defects claims. As I have said, it may be that parties involved in such disputes should give consideration to making offers of compromise to settle individual aspects of such claims.

277. Essentially similar comments apply to Calderbank offers. In addition, litigants and those who advise them should bear in mind that Calderbank offers at least can be made not only in respect of claims and issues in the proceedings, but also in respect of costs.

278. There is one final point. The substantive hearing in relation to the referee's report occupied one day of hearing. I was able to give ex tempore reasons that day, and make the orders that I did. Those reasons occupied some 69 paragraphs. By contrast, the costs hearing took two days. The attitude of the Owners Corporation was in my view unrealistic. The orders propounded by the defendants were extreme in their complexity. As I have pointed out, any assessment of costs under orders of the kinds propounded by the defendants would have been time consuming and expensive. These reasons are more than four times longer than the reasons that were necessary to explain the orders made on the primary dispute - as to adoption of the report.

279. As a general rule, it seems to me to be both disproportionate and unacceptable for argument on ancillary matters (in this case, costs) to occupy greater time than argument on the principal dispute. Equally, it is a disproportionate exercise for the court to be required to devote substantially greater resources in dealing with the ancillary dispute than were required to deal with the principal dispute.

280. The general principles in relation to costs are clear. They have been emphasised in cases far too numerous to mention. Whilst I accept that it is sometimes difficult to apply those general principles to a specific case, and in particular to apply them in the context of building defects litigation, nonetheless the point must be made that the court expects parties to take a reasonable and considered approach in relation to costs, as in relation to the conduct of proceedings more generally.

281. Undoubtedly, in this case, the underlying reality is that the costs incurred by the Owners Corporation exceed, probably by a substantial margin, the amount of the judgments that it has recovered. But the fact that costs have been expended disproportionately in pursuing claims for relief should not lead to the outcome that even greater costs are incurred in pursuing what in my view were fundamentally misguided claims of an ambit nature. That approach, which I think can be attributed to the Owners Corporation in this case, sparked a similarly disproportionate response from the defendants. The consequence is that, in contrast to the efficient hearing conducted on the motion to adopt the report, the dictates of s 56 of the Civil Procedure Act have been abandoned, and left to gather dust. That is not acceptable in modern litigation.

Costs of this application

282. In my view, bearing in mind the extreme positions taken by the parties and the other matters to which I have referred at [278] to [281], it is inappropriate to subject any party to a liability for the costs of any other incurred in respect of the costs applications. Each party should bear its own costs of the costs applications.

Orders

283. I make the following orders:

(1) In matter 2005/270930, order the defendant to pay 40% of the plaintiff's costs incurred against the defendant, such costs to exclude the costs of and incidental to the applications for special or other costs orders and to be assessed on the ordinary basis.

(2) In matter 2005/271047, order the defendant to pay 40% of the plaintiff's costs incurred against the defendant, such costs to exclude the costs of and incidental to the applications for special or other costs orders and to be assessed on the ordinary basis.

(3) In each matter, order that costs so payable be set off against costs otherwise payable to the defendant.

(4) In each matter, make no further order as to costs, to the intent that otherwise each party pay its own costs.

(5) Direct that the exhibits tendered on the costs applications be handed out.

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