Lost Your Marble(s)

Introduction

Disputes as to residential building work are often emotional affairs, with both parties holding strong views.  Builders often take an optimistic view of their work. Homeowners are often personally invested in the dream of having their home “just so”.  This mix of competing tensions provides fertile ground for disputes. 

Occasionally, a dispute arising over a modest sum of money leads to an expensive litigation battle, with both parties incurring disproportionate legal expenses.  This Update attempts to explain the award of costs in a dispute with what Justice Kimber described as an “unfortunate case history”.[1]

The case serves as a timely reminder of the legal principles that underpin the award of legal costs and the strategic benefits of offering a genuine compromise at an early stage of a dispute.

The background story

On 15 October 2018, the owners of a home in Tennyson (Owners) entered a contract (the Contract) with BuildInc Pty Ltd (BuildInc) and Adelaide Marble Specialists Pty Ltd (Adelaide Marble) where BuildInc would provide construction management services and act as an agent of the Owners in arranging for renovation work at their home.

Under the Contract, Adelaide Marble was to supply and install marble benchtops and pantry and kitchen splashbacks (the Works).  The Contract comprised of a signed order form which included general terms and conditions, and a quotation which was accepted with some minor variations.  The quote was a combined quote for both the bench tops and the splashbacks, with a separate order form being issued for each.

Part way through the Works a dispute arose between the Owners and Adelaide Marble as to the quality of the Works.  The Owners complained that the edges of the benchtops were not in accordance with the terms of the Contract. Adelaide Marble refused to replace the benchtops.  Adelaide Marble stopped work after completing most but not all the benchtops and did not supply any of the splashback component of the Works.

As a result of Adelaide Marble stopping work the Owners accepted that the Contract was over and it was terminated.  The Owners then engaged Architectural Joinery Pty Ltd (AAJ) to rectify and complete the Works.

When an owner is legally entitled to terminate a building contract, the Owner is entitled to have the work rectified and completed by others and then claim from the original builder compensation for any additional cost above the original contract sum.   In other words, the owner is entitled to compensation from the original builder to place the owner in the same financial position in which it would have been, if the builder had properly performed the work under the original contract.

The Owners go to Court

Ultimately, the Owners issued a claim in the Magistrates Court against Adelaide Marble seeking compensation for the costs of having the Works completed by AJA. Adelaide Marble defended the claim to the end.

Overview of the litigation

The total quantum of the Contract was approximately $23,265 and it appears from the published reasons that most of that amount had been paid to Adelaide Marble before the dispute developed.

While it is not made clear in the reasons, it appears that the claim by the Owners was for approximately $20,000, being the amount in excess of the original Contract sum they paid to AJA to rectify and complete the Works.

The trial in the Adelaide Magistrates Court proceeded for more than 8 days.  The learned Master presiding over the Court delivered judgment for the Owners but both parties raised issues and further submissions were invited. 

A second judgment was then delivered, awarding a lesser sum to the Owners.  The Owners considered that the Court had fallen into error and made further contentions to the Court, resulting in a third judgment.

The Master, who heard the claim in the Magistrates Court, found that Adelaide Marble breached the Contract because it failed to supply bench tops in accordance with the Contract. The Master accepted that by refusing to finish the Works and replace the benchtops, Adelaide Marble breached the Contract. His Honour found that the Owners accepted Adelaide Marble’s repudiation of Contract and found the Owners were entitled to compensation.

The final judgment in the Magistrates Court awarded to the Owners the sum of $15,230.87 (excluding interest).

Legal costs

When parties embark on litigation over a modest quantum in dispute, the driving force can quickly become the legal costs.  Sensible compromise offers have a great impact on how legal costs are awarded at the end of the litigation. If no compromise offer is made by either side, the losing party is usually ordered to pay costs on the “ordinary basis”, which typically equate to around 60% of the winner’s legal costs.

During the pre-trial process the Owners made various offers to settle. Ultimately, the Owners filed an offer on 17 March 2020 to accept the sum of $15,000, inclusive of interest (Offer).

As mentioned above, the final judgment delivered on 22 April 2022, awarded the Owners the sum of $15,230.87 (exclusive of interest), slightly more than the Offer.  Given the Offer, the Court ordered Adelaide Marble pay the Owners legal costs after the date of the Owner’s Offer on a solicitor-client (indemnity) basis. An award of costs on that basis usually results in the loser paying around 90% to 95% of the winner’s legal costs. 

The Supreme Court Appeal

Adelaide Marble appealed the Master’s finding to the Supreme Court, both as to the quantum it was ordered to pay and as to the decision to award costs on an indemnity basis.

It is not uncommon for a trial in Court to cost each party between $8,000 and $12,000 per day (or more).  There is no information in the published reasons as to the amount of costs incurred by each of the parties in this case.  However, in our experience the legal costs for each party of an eight day trial and a Supreme Court appeal could exceed $100,000.

Adelaide Marble’s ultimate liability would include its own legal costs, the Owner’s legal costs as set out above, together with the judgment sum of $15,230.87.  As can be seen, a dispute over a modest kitchen renovation morphed into a much greater financial impost.

Justice Kimber dismissed the appeal and agreed with the Master’s earlier decision. Adelaide Marble was again ordered to pay the legal costs of the appeal on an indemnity basis.  The policy reasons for the Court’s discretion to award costs on an indemnity basis is obvious but can be simply stated. 

Our system of justice is costly and is paid for by taxpayers. Parties who unnecessarily load the Court system by refusing sensible offers and then achieve a worse outcome at trial are required to fully reimburse their opponents. 

Knowing that this is a likely outcome is an inducement to parties to settle their dispute before trial, particularly where their own legal fees are significant.

Conclusion

When considering strategy in litigation, every effort should be made to contain costs.

When deciding on the quantum of an offer of compromise it is often difficult for lawyers to persuade their client to reduce their expectation, particularly when the client has expended substantial legal fees.

Early offers of compromise are powerful strategic tools in promoting a settlement.  As the trial date approaches and legal costs mount, parties will often regret not accepting an earlier offer.

[1] Adelaide Marble Specialists Pty Ltd v Ragunath & Anor [2023] SASC 139.

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