Carpenters Motorcraft Pty Ltd v Novalane Pty Ltd & Deer Park Property Pty Ltd & Meridian Concrete Australia Pty Ltd (No. 2) [2012] VCC 352 (2 April 2012)

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CARPENTERS MOTORCRAFT PTY LTD	Plaintiff
(ACN 005 760 305)
v

NOVALANE PTY LTD (ACN 102 559 428)	Defendant

and

DEER PARK PROPERTY PTY LTD (ACN 131 137 347)	Third Party

and

MERIDIAN CONCRETE AUSTRALIA PTY LTD (ACN 128 225 098)	Fourth Party

JUDGE:	HIS HONOUR JUDGE GINNANE
WHERE HELD:	Melbourne
DATE OF HEARING:	20 December 2011
DATE OF RULING:	2 April 2012
CASE MAY BE CITED AS:	Carpenters Motorcraft Pty Ltd v Novalane Pty Ltd & Deer Park Property Pty Ltd & Meridian Concrete Australia Pty Ltd (No. 2)
MEDIUM NEUTRAL CITATION:	[2012] VCC 352

Costs – plaintiff unsuccessful- Calderbank offers – indemnity costs - proceedings between third party and fourth party - defendant connected with third party - whether defendant should pay the fourth party’s costs

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J Twigg	Vadarlis & Associates / Law 554

For the Defendant and Third Party	Mr B A Shnookal	B2B Lawyers

For the Fourth Party	Mr A Laird	Herbert Geer

1 On 15 December 2011, I delivered judgment in this proceeding and stated that I would make orders that:

(a) the proceeding by Carpenters Motorcraft Pty Ltd (“Carpenters Motorcraft”) against Novalane Pty Ltd (“Novalane”) be dismissed;

(b) that there be judgment for Novalane against Carpenters Motorcraft in respect of the amount of Novalane’s counterclaim save for Items 9, 10, 13 and 17;

(d) the third party claim by Deer Park Property against Meridian Concrete Australia Pty Ltd (“Meridian”) be dismissed.

2 On 20 December 2011, I heard argument about, and reserved my decision on, costs. These reasons determining the costs issues should be read with the judgment delivered on 15 December 2011.
3 No order for costs was sought by the third party Deer Park Property against Novalane.
4 Novalane sought judgment on its counterclaim in accordance with the judgment of 15 December 2011 in the sum of $90,763.20 plus interest as from 20 April 2009. The calculation of this sum of $90,763.20 was not disputed by Carpenters Motorcraft and I will make an order to that effect.

5 Novalane sought an order against Carpenters Motorcraft that it should pay Novalane’s costs of the proceeding including reserved costs. These costs were claimed from the date of commencement of the proceeding to 4 November 2010 on Scale D and on an indemnity basis from 5 November 2010 on, because of the non acceptance of a Calderbank offer made by Novalane.
6 Novalane argued that it had been wholly successful in defending Carpenter Motorcraft’s proceeding against it and largely successful on its counterclaim against Carpenters Motorcraft.
7 I accept that Scale D is the appropriate scale of costs because of the amount of the claim and the complexity of the proceeding. This proceeding was conducted before the changes to the Court’s scale of costs took effect on 1 September 2011.
8 The Calderbank offer was sent by Novalane’s solicitors to Carpenter Motorcraft’s solicitor in a letter dated 5 November 2010. The letter set out a number of reasons why it was contended that the plaintiff’s claim was without merit.
9 Some of those reasons were accepted in the judgment of 15 December 2011. They included that the Agreement to Lease did not impose any obligations on Novalane itself to construct the floor surface at the Deer Park premises. The Calderbank letter also addressed the counterclaim and argued that the plaintiff’s defence to the counterclaim was without merit.
10 The settlement offer was as follows:

11 The offer was expressed to be made without prejudice save as to costs and in accordance with the principles enunciated in Calderbank v Calderbank[1]. It was foreshadowed that if the offer was not accepted and the claim and counterclaim were determined so that the outcome was no more favourable to the plaintiff than the terms of this offer, the defendant would tender the letters in support of an application that Carpenters Motorcraft pay Novalane’s costs of the proceeding be paid on an indemnity basis from the date of the letter.
12 The offer was open for acceptance until 4.00 pm Friday, 12 November 2010.
13 The offer was made twelve days before the trial was then scheduled to commence, at which point pleadings were closed, discovery had been completed, experts’ reports and a joint report of experts had been provided, mediation had occurred, a judicial settlement conference had occurred and the trial was scheduled to commence on 15 November 2010, although that date was subsequently vacated. The offer contained a discussion of the merits of the proceeding.
14 The defendant also sought certification of counsel’s fees as set out in counsel’s fees slips in the sum of $82,820, in accordance with the practice adopted by the Court in Birek Industries Pty Ltd v McKenzie Group Consulting (Vic) Pty Ltd[2].
15 Counsel for the defendant referred to the recent decision of J Forrest J in Ultra Thoroughbred Racing Pty Ltd t/as Baree Stud v Those Certain Underwriters at Lloyd’s London[3] and the decision of the Court of Appeal in Commissioner of State Revenue v Challenger Listed Investments Ltd (No.2),[4] which in turn had considered the decision in Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No.2).[5]
16 In the Hazeldene’s Chicken Farm Case the Court of Appeal listed a range of considerations to take into account in determining whether a rejection of a Calderbank offer was unreasonable. These included: the stage of the proceeding at which the offer was received; the time allowed to the offeree to consider the offer; the extent of the compromise; the offeree’s prospects of success assessed as at the date of the offer; the clarity with which the terms of the offer were expressed and whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it.
17 Counsel for Carpenters Motorcraft submitted that I should not apply hindsight, but apply a consideration of the matters that prevailed at the time the offer was made. Counsel referred in particular to that part of the Calderbank offer which said that:

18 Counsel for the plaintiff accepted that the offer did represent a contribution towards settlement because it involved the giving up of the counterclaim in the sum of $96,000, but submitted that the real issue was whether the offer was an offer with certainty to make the Deer Park floor equivalent to the floor at Etheridge Ford.
19 Counsel pointed out the first part of the offer was in effect to undertake the site trial carried out on a delaminated area with a saw cut of 1 x 1 metre and 40 millimetres deep as the minimum depth and dimensions, all dimensions to be decided on site. Aitken Freeman, who was the supplier of the Floor Roc S product, was to advise on the patch repair materials for the three trial areas.
20 Page 5 of the attachment to the Calderbank offer, which described the offer for work was headed “Further Proposals from Kevin Campbell for Consideration following Conference at County Court”. It then proposed that Mr Campbell produce a specification based on a number of concepts. These included eliminating the eight patch repairs at the centre driveway of the workshop. The second concept was that the drummy areas were to be repaired by epoxy injection with surface mounted connections. The holes in the surface were to be 6 mms or less.
21 Novalane submitted that it was offering to do $62,000 worth of work.
22 Counsel for Carpenters Motorcraft contended that at the time this offer was made, the trial repair had not been conducted. There was no colour matching that was proposed and there was no indication as to whether the current colour matching could be achieved.
23 Counsel contended that the lack of certainty created by this offer was relevant to the determination of whether Carpenters Motorcraft had acted reasonably in rejecting the offer. The real issue was whether the offer was an offer with certainty about the steps being taken to achieve a floor equivalent to that at Etheridge Ford.
24 Novalane disputed these submissions and contended that the Court should award indemnity costs from the date of the Calderbank offer.
25 I consider that it was unreasonable for Carpenters Motorcraft to reject the offer. A broad view of the offer has to be considered. Novalane offered to agree to the proceeding being dismissed without seeking costs and agreed to relinquish its counterclaim. Novalane has succeeded in recovering a substantial proportion of that counterclaim. The offer also involved a proposal for further work to be carried out on the Deer Park floor to eliminate defects.
26 I have determined that the Carpenters Motorcraft had no contractual right to sue Novalane for a failure to construct a floor, the equivalent of the Etheridge Ford floor.
27 Taking the matters as a whole and after considering the matters mentioned in the Hazeldene’s Chicken Farm Case, I consider that at the time the offer was made it was unreasonable for Carpenters Motorcraft to reject it. It provided an outcome substantially superior to that that Carpenters Motorcraft has achieved. It was made at a point in the proceeding when Carpenters Motorcraft was in a position to assess it. A reasonable time was given for its acceptance. Novalane warned that it would seek indemnity costs. The fact that there was uncertainty as to the effect of the further work that was to be performed does not detract from the other elements of the offer to which I have referred.
28 In all the circumstances, I consider that an appropriate order is that the plaintiff pay the defendant’s costs, including any reserved costs, on a party/party basis on Scale D until 5 November 2010 and thereafter on an indemnity basis.
29 I do not consider that I should certify for the amount of preparation to be allowed to counsel. I consider that that is now a matter for the Costs Court. I am not in a position to assess an appropriate amount of preparation. I do not have the detail necessary to carry out that task. I take a similar view in respect of appearances other than at trial. I will, however, certify for Novalane’s counsel’s daily trial fees and preparation rate at the rates proposed by Novalane, which were $4000 per day for each trial day and $380 per hour until 20 November 2010 and thereafter $400 per hour for preparation. I consider those rates reasonable in view of the nature of the proceeding and the issues raised in it.

30 I indicated that I would order that the fourth party claim brought by Deer Park Property against Meridian be dismissed.
31 In Kheirs Financial Services Pty Ltd v Aussie Home Loans Pty Ltd[6], the Court of Appeal identified the following principles as applicable to the costs where a plaintiff had failed and claims by the defendant against third and fourth parties had also failed:

These principles would apply equally to fourth party proceedings.”
32 Deer Park Property submitted that in the principal judgment I had made findings that the floor constructed by Meridian was defective and that the cost of repair to produce a result that most closely approximated compliance with the sub-contract according to the fourth party’s own expert was $262,380.94. Deer Park Property submitted that I had overlooked making a determination of paragraphs 17 and 18 of its Amended Statement of Claim against Meridian dated 6 July 2010, in which damages for breach of the sub-contract were sought. It argued that this omission could not be rectified by the Court and the third party needed to pursue its claims on appeal.
33 Deer Park Property submitted that the appropriate order was that the question of costs as between it and Meridian be reserved pending the outcome of appeals; or alternatively that there be no order as to costs. Any other result would be unjust. It was also submitted that I should grant leave to appeal.
34 I do not consider that I should grant leave to appeal but, rather, that if leave is required, any such application should be determined by the Court of Appeal.
35 Meridian argued that in the first instance it was entitled to an order that Deer Park Property pay its costs of the proceeding on the appropriate County Court scale. In addition Meridian relied on a Calderbank offer of 16 August 2010 to argue for an order that its costs after 16 August 2010 be paid on an indemnity basis.
36 On 16 August 2010, Meridian made a Calderbank offer to Deer Park Property in which it offered to pay the sum of $92,000. The offer explained why the proceeding appeared to be headed towards a lengthy and expensive trial and why the offer was under all the circumstances very reasonable. Meridian has achieved a much more favourable outcome than the terms of the Calderbank offer. It was unreasonable for Deer Park Property not to have accepted the offer in view of the particular circumstances of the case.
37 Meridian’s offer was as stated, that it would pay Deer Park Property the sum of $92,000 inclusive of costs, interest and taxes, in full and final settlement within fourteen days of acceptance of the offer. The offer was made on 16 August 2010 and it was open for acceptance until 27 August 2010. In return for the offer, Meridian required a full release and discharge and full indemnity in relation to any claim that Carpenters Motorcraft and/or Novalane may purport to bring against it in relation to the work. Upon acceptance of the offer, Deer Park Property and Meridian agreed to the claim by Deer Park Property against Meridian being struck out with the right of reinstatement. Meridian reserved its right to seek indemnity costs if the offer was not accepted.
38 Deer Park Property argued that the offer of $92,000 was much less than the cost to repair the floor of $262,380.94. It submitted that as an offer inclusive of costs, the actual value of the rectification work it represented was uncertain.
39 Deer Park Property also argued that the offer imposed the condition that it fully indemnify Meridian for any claim which Carpenters Motorcraft might bring against it in relation to the works. That condition was unreasonable and beyond the judgment that might have been obtained in the proceedings. If Deer Park Property accepted the offer, it would have exposed itself to unknown unlimited liability for any claim that Carpenters Motorcraft may any time in the future bring against Meridian in relation to the works. The indemnity extended beyond defects alleged in the proceeding to claim in relation to the works.
40 I accept Deer Park Property’s submissions. I take into account particularly Meridian’s demand for the indemnity. That demand is relevant to determining the extent of the compromise offered and the prospect of Meridian achieving what it required to settle. I do not consider it was unreasonable for Deer Park Property to refuse the Calderbank offer. The offer involved a requirement that Deer Park Property agree to an indemnity that Meridian was unlikely to have achieved from the proceeding. It was a wide indemnity and may have exposed Meridian to liability far greater than its liability in the fourth party proceeding.
41 However Deer Park Property’s fourth party proceeding against Meridian has not succeeded. It is appropriate that Deer Park Property should pay Meridian its costs of the proceedings on a party/party basis to be taxed on Scale D in default of agreement. I do not consider that I should depart from that usual rule by attempting to predict Deer Park Property’s prospects on any appeal that it may bring.
42 I again apply the approach to certification of counsel’s fees that I indicated in respect of Novalane’s costs. I certify for the fees for Meridian’s counsel at the rates sought, which I consider are reasonable. They are $3950 for each day of the trial and a rate of $395 per hour for each hour of preparation allowed by the Costs Court. Both fees are inclusive of GST. The amount of preparation allowed is properly determined by the Costs Court. I again leave for the Costs Court to determine the appropriate fee for counsel for appearances in the proceeding other than at trial.

43 Meridian argued that the third and fourth party proceedings were clearly structured in a manner that sought to use Deer Park Property as a conduit in an attempt to pass off any potential liability that Novalane had to Carpenters Motorcraft onto Meridian. There were common directors between the two companies. If Deer Park Property was ultimately unable to satisfy what was likely to be a large costs order in favour of Meridian, it would unfair in view of the particular circumstances of the case if Novalane could simply wash its hands of the matter.
44 I was referred to no authority for that proposition. While the determination of costs is always in the discretion of the court, I do not consider that there should be any costs order in favour of Meridian against Novalane. I do not propose to make such an order.
45 Accordingly, the orders I will make are:

(1) The proceeding by Carpenters Motorcraft Pty Ltd against Novalane Pty Ltd is dismissed.

(2) That there be judgment for Novalane Pty Ltd on its counterclaim against Carpenters Motorcraft Pty Ltd in the sum of $90,763.20,plus interest.

(3) Novalane Pty Ltd pay Carpenters Motorcraft Pty Ltd’s costs of the proceeding, including any reserved costs, on a party/party basis to be taxed on Scale D in default of agreement until 5 November 2010 and thereafter on an indemnity basis. Certificates granted for counsel for Novalane for each day of trial at a daily rate of $4000. All fees for other appearances are to be determined by the Costs Court in default of agreement. Certificates granted for counsel for Novalane’s preparation at the rate of $ 380 per hour until 20 November 2010 and thereafter at the rate of $400 per hour. The amount of counsel’s preparation to be allowed is to be determined by the Costs Court in default of agreement.

(4) The third party claim by Novalane Pty Ltd against Deer Park Property Pty Ltd is dismissed with no order as to costs.

(5) The fourth party claim by Deer Park Property Pty Ltd against Meridian Concrete Australia Pty Ltd is dismissed.

(6) Deer Park Property Pty Ltd pay the costs of Meridian Concrete Australia Pty Ltd, including any reserved costs, on a party/party basis to be taxed on Scale D in default of agreement. Certificates granted for counsel for Meridian Concrete Australia Pty Ltd for each day of trial at the rate of $3,950 per day. All fees for other appearances are to be determined by the Costs Court in default of agreement. Certificates granted for counsel for Meridian Concrete Australia Pty Ltd’s preparation at the rate of $395 per hour. The amount of counsel’s preparation to be allowed is to be determined by the Costs Court in default of agreement.


IN THE COUNTY COURT OF VICTORIA	Not Restricted

County Court of Victoria

Carpenters Motorcraft Pty Ltd v Novalane Pty Ltd & Deer Park Property Pty Ltd & Meridian Concrete Australia Pty Ltd (No. 2) [2012] VCC 352 (2 April 2012)