CIROCCO CONSTRUCTIONS PTY LTD (ACN 087 252 891) v ROSSLYN GAY CLARKE [2026] SADC 40

Applicant: CIROCCO CONSTRUCTIONS PTY LTD (ACN 087 252 891) Counsel: MR R ROSS-SMITH - Solicitor: FBR LAW Respondent: ROSSLYN GAY CLARKE Counsel: MR A DAL CIN - Solicitor: COWELL CLARKE First Third Party: WILLIAMS BURTON ARCHITECTS PTY LTD (ACN 008 090 873) Counsel: MR P ADAMS - Solicitor: MILLS OAKLEY Second Third Party: TASMANIAN SANDSTONE QUARRIES PTY LTD (ACN 092 517 283) Counsel: MR T GUTHRIE - Solicitor: BELPERIO CONNELL Hearing Date/s: 25/03/2025 to 27/03/2025, 31/03/2025 File No/s: DCCIV-15-483 B DISTRICT COURT OF SOUTH AUSTRALIA (Civil) DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment. The onus remains on any person using material in the judgment to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court in which it was generated. CIROCCO CONSTRUCTIONS PTY LTD v CLARKE & ORS (No 5) [2026] SADC 40 Judgment of her Honour Judge Thomas 29 April 2026 PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - JUDGMENTS AND ORDERS - INTEREST ON JUDGMENTS PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - GENERAL RULE: COSTS FOLLOW EVENT - GENERAL PRINCIPLES AND EXERCISE OF DISCRETION PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - OFFERS OF COMPROMISE, PAYMENTS INTO COURT AND SETTLEMENTS - INFORMAL OFFERS AND CALDERBANK LETTERS PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - INDEMNITY COSTS - RELEVANT CONSIDERATIONS GENERALLY PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - INTEREST ON COSTS There were mixed successes on the primary and secondary actions in this proceeding following a lengthy Arbitration and a two-part trial principally about defective and incomplete domestic building works carried out from 2012 to 2016. -- 1 of 74 -- As between the applicant/cross respondent Builder and the respondent/cross applicant Owner, the Builder failed on the claims remaining on its primary action after its partially successful summary judgment application. There were mixed successes on the Owner’s cross action against the Builder. On judgment, the Builder was liable to pay the Owner compensation of $49,911.30 including GST. As between the Owner and the first third party respondent Architect, the Architect was manifestly successful following a de minimis judgment in the Owner’s favour of $164.38 excluding GST. As between the Builder and the second third party respondent Stone Supplier, the Builder’s claim for contribution was partially successful against the Stone Supplier. On judgment, the Stone Supplier was liable to pay the Builder $14,175.93 including GST. Declarations were made in the Owner’s favour declaring a progress payment certificate and two certificates of practical completion void and providing for credit adjustments of $9,539.20 including GST in the final certificate. The expenditure of private and public resources in conducting this proceeding through to judgment has been enormous and involved millions of dollars and is grossly disproportionate to the outcome. The Builder opposes an order for interest on the judgment sum awarded in the Owner’s favour. The Builder and the Architect each seek their costs of action against the Owner, contending an entitlement to indemnity costs on various grounds including the hopelessness of the Owner’s case on the stone issues. They also seek orders for interest on costs, set-off of their respective judgment debts against the Owner’s costs liability and orders for an interim taxation of disbursements incurred and paid. The Stone Supplier seeks its costs of action against the Builder on the standard costs basis, accepting that it may be appropriate for there to be a reduction in the percentage recovered to reflect the Builder’s success on a minor claim. The Builder does not oppose an order that the Stone Supplier have 90% of its costs of action on the standard costs basis and seeks indemnity from the Owner for its costs liability to the Stone Supplier. The Owner takes a contrary position, contending that although she was the successful party overall, it would be appropriate in the circumstances of this case for there to be no order as to costs with the result that each party would bear their own costs of the various primary and secondary actions and any costs orders already made would not be affected. The Owner opposes any orders for interest on costs, set-off or an interim taxation. Questions considered as to who was the manifestly successful party in a building case where the issues were invariably financial, whether the final costs orders should reflect the mixed successes of the parties on the various primary and secondary claims and the costs consequences of disproportionate costs, disentitling conduct and the unreasonable non-acceptance of informal and formal offers. Held: 1. Having regard to the Owner’s non-compliance with her contractual obligations for holding cash retention, the Owner is not entitled to any pre-judgment interest on the judgment sum of $49,911.30 including GST awarded against the Builder. Reasons [41]-[45]. 2. As between the Builder and the Owner, having regard to their mixed successes on the key claims, it is appropriate that there be a separate costs order in the Builder’s favour on the stone issues on an indemnity costs basis but no order as to costs on the balance of the Owner’s cross action including the Arbitration or on the claims and issues determined at trial on the Builder’s primary action. Reasons [108]-[235]. 3. As between the Architect and the Owner in the special and exceptional circumstances of this case it is appropriate that the Architect has its costs of action against the Owner on the standard costs basis until 19 June 2019 and on an indemnity costs basis from 20 June 2019. Reasons [248]-[362]. -- 2 of 74 -- 4. As between the Builder, Stone Supplier and Owner, it is appropriate that the Builder pay the Stone Supplier 85% of its costs of action and the Owner indemnify the Builder for its liability to the Stone Supplier on costs. Reasons [371]-[383]. 5. It is appropriate to make orders setting-off of the Builder’s and the Architect’s respective liabilities for their judgment sums against the Owner’s respective costs liabilities to each of them. Reasons [240]-[241], [365]. 6. It is premature and not appropriate to make any order for interest to be payable on the costs and disbursements paid by the Builder or the Architect or to order an interim taxation. Reasons [242]-[247], [366]-[370]. Building Work Contractors Act 1995 (SA); District Court Act 1991 (SA); Uniform Civil Rules 2020 (SA); District Court Civil Rules 2006 (SA), referred to. A, DC v Prince Alfred College Inc (No 2) [2016] SASCFC 27; Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 All ER 685; Anglo-Cyprian Trade Agencies [1951] 1 All ER 873; Anglo-Cyprian Trade Agencies v Paphos Wine Industries Ltd [1951] 1 All ER 873; Beaumont v Greathead (1846) 135 ER 1039; Bell v Deputy Coroner of South Australia (No 2) [2020] SASC 77; Boral Australian Gypsum Ltd v Victorian WorkCover Authority [2015] VSCA 187; Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107; Brine v Carter (No 2) [2016] SASC 37; Calderbank v Calderbank [1975] 3 All ER 333; Canvas Graphics Pty Ltd v Kodak (Australasia) Pty Ltd [1998] FCA 23; Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353; Cirocco Constructions Pty Ltd v Clarke & Ors (No 4) [2024] SADC 150; Cirocco Constructions Pty Ltd v Clarke [2015] SADC 98; Cirocco Constructions Pty Ltd v Clarke (No 2) [2015] SADC 107; Colgate-Palmolive Ltd v Cussons Pty Ltd (1993) 46 FCR 225; Cretazzo v Lombardi (1975) 13 SASR 4; DKL v LYK (No 2) [2019] SASC 160; Duke Group Ltd (in liq) v Pilmer (1999) 73 SASR 64; Edginton v Clark [1964] 1 QB 367; Edwards v Stocks (2009) 17 Tas R 454; Fountain Selected Meat (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397; Furber v Stacey [2005] NSWCA 242; Gertig v Davies [2003] SASC 86; Grbavac v Hart [1997] 1 VR 154; Hamod v New South Wales (2002) 188 ALR 659; Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435; Holt v Bunney (No 2) [2020] SASCFC 120; House v R (1936) 55 CLR 499; James v Royal Bank of Scotland (No 2) [2015] NSWSC 970; Kheirs Financial Services Pty Ltd v Aussie Home Loans Pty Ltd (2010) 31 VR 463; Latoudis v Casey (1990) 170 CLR 534; Lauro v Minter Ellison (A Firm) (No 2) [2025] SASCA 131; Leaver v Golsby [1964-5] NSWR 1833; Lesses v Maras (No 3) [2017] SASCFC 154; Lodestar Anstalt v Campari America LLC (No 2) [2016] FCAFC 118; MBP (SA) Pty Ltd Pty Ltd v Gogic (1991) 171 CLR 657; Melbourne City Investment Pty Ltd v Treasury Wine Estates Ltd (No 2) [2017] FCAFC 116; Mifsud v ICT Pty Ltd (1997) 7 Tas R 148; Milne v Attorney- General for the State of Tasmania (1956) 95 CLR 460; Nominal Defendant v Dighton (No 2) [2012] SASCFC 97; O’Brien v Cowie & Anor (No 2) [2021] SASC 52; Oshlack v Richmond River Council (1998) 193 CLR 72; Phantom Precision Engineering Pty Ltd v Luscombe (No 2) [2021] SASC 103; Public Trustee v Newman (2012) 112 SASR 299; Qantas Airways Ltd v Dillingham Corporation Supreme Court of New South Wales, Roger J, 14 May 1987; Ramsay v Annesley College (No 2) [2013] SASC 145; Reid, Hewitt & Co v Joseph [1918] AC 717; Roberts v Roberts [2021] SASC 91; Ruddock v Vadarlis (No 2) [2001] FCA 1865; Sands v Channel Seven Adelaide Pty Ltd & Anor (No 2) [2009] SASC 365; Sherborne Estate (No 2), Re; Vanvalen v Neaves; Gilroy v Neaves [2005] NSWSC 1003; Sloan v Service Stream Ltd (No 3) [2020] SADC 132; Steven v Chandler (1988) 46 SASR 541; Testel Australia Pty Ltd v Goulding & Ors [2023] SASCA 116; Trinity College v Commissioner of State Taxation (No 2) [2024] SASC 41; Yates Property Corporation Pty Ltd v Boland (No 2) (1997) 147 ALR 685, considered. -- 3 of 74 -- -- 4 of 74 -- CIROCCO CONSTRUCTIONS PTY LTD v CLARKE & ORS (No 5) [2026] SADC 40 OVERVIEW ................................................................................................................................................................... 2 THE PARTIES’ POSITIONS ............................................................................................................................. 2 The Builder’s Position.............................................................................................................................. 2 The Owner’s Position ............................................................................................................................... 3 The Architect’s Position .......................................................................................................................... 4 The Stone Supplier’s Position ................................................................................................................. 4 CONSIDERATION - MIXED SUCCESSES..................................................................................................... 5 PRE-JUDGMENT INTEREST .......................................................................................................................... 8 COSTS QUESTIONS .......................................................................................................................................... 8 As between the Builder and the Owner.................................................................................................. 9 As between the Owner and the Architect ............................................................................................ 10 As between the Builder and the Stone Supplier and the Owner ........................................................ 10 COSTS PRINCIPLES ....................................................................................................................................... 10 Generally ................................................................................................................................................. 10 Costs Sanctions for Proceeding in the Wrong Court .......................................................................... 12 Disproportionate Costs .......................................................................................................................... 13 Mixed Success ......................................................................................................................................... 14 Settlement Offers .................................................................................................................................... 16 Disentitling Conduct .............................................................................................................................. 21 Indemnity Costs ...................................................................................................................................... 21 COSTS - AS BETWEEN THE BUILDER AND THE OWNER ................................................................... 22 Costs of Action to 11 August 2015 ........................................................................................................ 22 Should costs follow the overall event or the issues and if so, on what basis? ................................... 23 Do the Builder’s settlement offers justify a different conclusion? ..................................................... 36 Should an order be made apportioning costs? .................................................................................... 43 Should the additional order be made? ................................................................................................. 43 Set-off of Judgment Sum and Costs ..................................................................................................... 44 Interest on Costs Paid ............................................................................................................................ 44 Interim Taxation .................................................................................................................................... 45 COSTS - AS BETWEEN THE OWNER AND THE ARCHITECT............................................................. 45 Conclusion ............................................................................................................................................... 45 Who was the successful party overall? ................................................................................................. 45 Is the Architect entitled to indemnity costs?........................................................................................ 47 No Adverse Costs Order ........................................................................................................................ 64 Set-off of Judgment Sum and Costs ..................................................................................................... 65 Interest on Costs and Disbursements Paid Forthwith ........................................................................ 65 COSTS - AS BETWEEN THE BUILDER AND THE STONE SUPPLIER AND THE OWNER ............ 66 Conclusion ............................................................................................................................................... 66 Is the Stone Supplier entitled to its costs of action against the Builder? .......................................... 66 Should the Owner indemnify the Builder for the Stone Supplier’s costs? ....................................... 66 CONCLUSIONS ................................................................................................................................................ 68 -- 5 of 74 -- [2026] SADC 40 2 OVERVIEW 1 On 13 November 2024 I delivered my reasons for judgment in this proceeding1 and made numerous finalising orders.2 Because of the number and complexity of the issues determined, the length of my reasons and the mixed successes of the parties on the key claims, I adjourned the proceeding to 29 November 2024 to provide the parties with an opportunity to be heard on the form of the proposed declarations, any further final orders, interest and costs. 2 On 29 November 2024, I made the following further finalising declarations and orders by consent:3 6. It is declared that Progress Payment Certificate 11 dated 3 September 2014 is void. 7. It is declared that the certificates of practical completion issued on 1 December 2014 are void. 8. It is declared that the final certificate to be issued by the Architect under clause N11 of the Building Contract shall include a credit in favour of the Owner of $151.05 plus GST on account of variations and $8,672.00 plus GST on account of PC Sums adjustments as determined by the Court. 9. The Builder is liable to pay the Owner compensation pursuant to s 37 of the Building Work Contractors Act 1995 assessed in the amount of $45,373.91 plus GST, payment of which liability is stayed until further order. 10. The Architect is liable to pay damages to the Owner in the amount of $164.38,4 payment of which liability is stayed until further order. 3 A timetable was then set for argument on the questions of interest and costs. 4 Oral argument on interest and costs proceeded on 25 to 27 and 31 March 2025. The material relied on in support of the parties’ opposing positions on these questions was substantial.5 The Owner sought and was then given leave to file her Response to the Architect’s Table of Offers. 5 These reasons should be read in light of my reasons for judgment and the final orders made on 13 and 29 November 2024. For consistency, the same abbreviations and terms are used in my reasons for judgment and these reasons on interest and costs. THE PARTIES’ POSITIONS The Builder’s Position 6 On pre-judgment interest, the Builder contends the Owner should not be entitled to any interest because she failed to maintain an interest-bearing bank 1 Cirocco Constructions Pty Ltd v Clarke & Ors (No 4) [2024] SADC 150 (Principal Reasons). 2 Record of Outcome 13 November 2024 (FDN 281). 3 Record of Outcome 29 November 2024 (FDN 283). 4 Excluding GST. All figures are excluding GST unless otherwise stated. Principal Reasons [2142]. 5 See Appendix A. -- 6 of 74 -- [2026] SADC 40 3 account for the cash retention sum of $105,850 that she has held since March 20146 in breach of the Building Contract.7 7 On costs, the Builder’s primary position is that it should have its costs of action against the Owner as the truly successful party overall. The Builder contends it is appropriate to consider the history and outcome of the claims determined in the Arbitration and the trial separately8 and seeks costs orders against the Owner that distinguish between these forums as well as the early part of the proceeding. 8 The first order the Builder seeks against the Owner is 85% of its costs of action up to and including 11 August 2015 on the standard costs basis. The Builder next seeks 90% of its costs of the Arbitration on the standard costs basis and then, the balance of its costs of action on an indemnity costs basis. In the alternative, the Builder seeks the balance of its costs of action on an indemnity costs basis from November 2016 when its formal offer of settlement filed pursuant to r 187 of the District Court (Civil) Rules 2006 (2006 Rules) lapsed without being accepted by the Owner. 9 The Builder contends for an alternative position should the Court not make the costs orders it seeks and instead is inclined to make no order as to costs as between the parties. In that case the Builder seeks an additional order that it be reimbursed by the Owner for the costs occasioned by the time it spent in the proceeding on the Owner/Architect claims. 10 The Builder seeks indemnity from the Owner under r 194.7 of the Uniform Civil Rules 2020 (UCR) for its costs liability to the Stone Supplier for the third party claim it brought by reason of the Owner’s allegations about the stone defects and acid cleaning damage. 11 The Builder seeks further orders against the Owner for interest on costs paid and for set-off of its judgment debt of $49,911.30 including GST against the Owner’s costs liability. The Builder seeks an interim taxation of its disbursements incurred and paid. The Owner’s Position 12 The Owner makes no claim for pre-judgment interest on her damages awards and made no submissions in regard to the Builder’s opposition to such an order being made in her favour. 13 On costs, the Owner’s primary contention is that in the circumstances of this case there should be no orders as to costs with the result that each party would bear their own costs of the various primary and secondary actions and any costs orders already made would not be affected. She contends that whilst she was the 6 See [45] below. 7 Exhibit R3.2. 8 Builder’s Costs Submissions in Reply to Owner’s Submissions (FDN 297) [14]-[21]. -- 7 of 74 -- [2026] SADC 40 4 successful party overall, in a case that had a number of complexities and in which all parties maintained positions in respect of which they succeeded on some issues but failed on others, the Court ought not exercise the ordinary rule that costs follow the event but, equally, the Court ought not require any party to pay the costs of any other party. 14 The Owner further submits that the history of the stone issues illustrates that it was reasonable for her to maintain her case against the Builder and the Architect on this claim to trial and neither the settlement offers made nor the outcome justify separate costs orders against her in favour of the Builder or the Architect. 15 In the alternative, if the Court were to make separate costs orders for the various primary and secondary actions in the proceeding, the Owner contends that the Builder should pay her the costs of its unsuccessful claim against her and otherwise, there should be no orders as to costs. She submits this approach to costs arises out of a more direct application of the rules. That is, costs should follow the event of each action, but where the successes were for amounts to which UCR r 194.5(11) applies, there should be no order as to costs (although she submits it might be said this rule does not apply because of the declaratory relief granted). 16 The Owner opposes any order against her for indemnity costs, contending there are no factors that justify such an exceptional award and this was a case in which all parties could have made a greater endeavour to resolve the dispute. Further, for her part, the Owner demonstrated her willingness to compromise and resolve all issues from the time she made her first Calderbank offer to the Builder and the Architect jointly that was not accepted. 17 The Owner opposes any orders in the nature of interest on costs set-off or for an interim taxation. She submits these matters should be addressed after the parties have had the opportunity to consider the Court’s determination on costs. The Architect’s Position 18 The Architect seeks its costs of action against the Owner on an indemnity costs basis from the commencement of the action and for any adverse costs orders to be set aside in circumstances where it was the manifestly successful party and was forced to incur very significant and disproportionate costs despite making numerous settlement offers that were more favourable to the Owner than the outcome on judgment. 19 The Architect also seeks interest on its costs and orders that its judgment debt of $164.38 be set-off against the Owner’s costs liability and that there be an interim order for payment of its disbursements forthwith. The Stone Supplier’s Position 20 The Stone Supplier seeks the entirety of its costs of action against the Builder on the standard costs basis contending it was manifestly successful on the substantive issues in dispute that involved it. In the alternative, the Stone Supplier -- 8 of 74 -- [2026] SADC 40 5 seeks 95% of its costs of action on the standard costs basis having regard to the outcome of the minor claims for acid damaged CSS Items9 totalling $12,887.21 that were primarily ventilated in the Arbitration. 21 The Builder does not oppose an order that the Stone Supplier have a significant proportion of its costs of action against it, submitting 90% would be a fairer reflection of their mixed successes and seeks indemnity from the Owner for any costs awarded against it. Consistent with her primary position, the Owner contends that it is appropriate that there be no orders as to costs between the Builder and the Stone Supplier and opposes any order that she indemnify the Builder for its liability to the Stone Supplier for costs. CONSIDERATION - MIXED SUCCESSES 22 There were mixed successes in this proceeding. Contrary to the Owner’s submissions, she was not the successful party overall. Nor was the Builder or the Stone Supplier. 23 The Architect was the only manifestly successful party overall. The Architect was successful in defending nearly all the claims made against it by the Owner and where unsuccessful, that liability was the subject of a successful claim for set-off of a nearly equivalent amount leaving a de minimis net balance in the Owner’s favour. 24 The Builder failed against the Owner on the claims remaining on its primary action after its partially successful summary judgment application. There were mixed successes on the Owner’s cross action against the Builder and the Builder’s claim for contribution/indemnity against the Stone Supplier. 25 It is important to start by putting in context these mixed successes, taking account of the long history of the proceeding10 and the evolution of the key issues in dispute. 26 The proceeding was commenced by the Builder in 2015 following the Owner withholding payment of the Builder’s two final tax invoices issued in September and November 2014 whilst building and defect correction works were ongoing. Separate proceedings brought by the Owner in the Magistrates Court were joined to this proceeding without any opposition by the Builder.11 The Owner’s claims against the Builder and Architect were brought by separate cross actions that were amended numerous times, including at trial. In July 2018, the Builder joined the 9 That is, the ‘Compiled Scott Schedule’ Items that identified the defective/incomplete work items referred to Arbitration. 10 Principal Reasons [17]-[26]. 11 The Owner instituted a claim against the Builder in the Magistrates Court of South Australia under the Building Work Contractors Act 1995 on 3 June 2015 that was transferred to this Court on 9 June 2015 and joined into this proceeding on 24 June 2015. See Transcript 24 June 2015 p 40.21-.22. -- 9 of 74 -- [2026] SADC 40 6 Stone Supplier as a second third party seeking contribution/indemnity should the Owner succeed in her claims for stone defects and acid cleaning damage. 27 Despite the multiplicity of actions and claims involved, this proceeding essentially concerns protracted and factually complex disputes arising from the Owner’s claim for compensation for defective and incomplete domestic building works. Total remedial costs claimed by the Owner were in the order of $1.398 million for some 184 separate defect items including the stone defects the subject of the July 2022 trial. 28 Each defect item the subject of complaint by the Owner was identified in the Scott Schedule comprising the same Annexure A to the Owner’s cross actions against the Builder and the Architect and the basis of independent causes of action in contract and tort brought against each of them. 29 Although the Architect was not party to the Building Contract, it had an important role in administering it.12 The Architect was engaged by the Owner under a separate contract. The main issues between the Builder and the Owner concerned competing claims about the Builder’s entitlement to payment for building works and the Owner’s entitlement to compensation for remedial costs. As between the Owner and the Architect, the Owner sought compensation for alleged over- certification of non-compliant works and for causing the defective works to be done in breach of its contractual and tortious duties. 30 There were subsidiary disputes about approved variations and provisional sums the subject of PPC 12 and the Builder’s final invoice and other minor claims arising on the Owner’s cross action against the Builder and the Architect totalling the significantly lesser amount of $104,797.21.13 31 The key claims in the proceeding were conceptually distinct and separate. 32 Key questions about the defects claims other than stone were referred to and heard separately in the Arbitration. The Arbitration hearing involved a two-day view and 27 sitting days between 28 September and 21 December 2021. The Award was delivered on 28 June 2022, delaying the start of the trial that had been listed for November 2021. 33 The stone defects issues were reserved to the trial judge. These issues concerned alleged defects in the stonework laid on the external walls of the Owner’s house and garage arising on the Owner’s cross actions against the Builder and the Architect and on the Builder’s contribution/indemnity claim against the Stone Supplier.14 The Owner’s pleaded case on the stone defects was addressed in 12 Principal Reasons [287]-[291]. 13 $59,253.66 for approved variations, $18,230.70 for PC Sum adjustments and $27,312.85 for other claims, all excluding GST. 14 Principal Reasons, Part E. The Owner’s cross actions against the Builder and Architect relied on the same stone defects, save for joint size, a defect that was only pressed against the Architect from July 2020. -- 10 of 74 -- [2026] SADC 40 7 her principal pleadings in addition to its inclusion as an item in the Scott Schedule.15 34 Stone defects liability issues were heard in the first part of the trial in July 2022 over the course of 16 sitting days.16 Other stone issues (quantum and apportionment/contribution), the Arbitration issues17 and the ancillary disputes were heard in November 2022 over the course of a further six sitting days.18 Final addresses were delivered on 15 February 2023. 35 The payment claims in the primary action and the Owner’s cross actions were heard in the second part of the trial as well as the claims made against only the Architect and the Architect’s claim against the Owner for set-off of its unpaid fees.19 36 Consistent with the separation of the key claims into the Arbitration and a two-part trial, these claims were addressed separately in closing submissions and my principal reasons. Separate final orders were made following the key claims on the various actions.20 37 Self-evidently, the expenditure of private and public resources in conducting this proceeding through to judgment has been enormous and involved millions of dollars. Since March 2015, the Builder has paid its lawyers in the order of $700,000 and incurred further legal costs and disbursements that it has not yet paid.21 Between August 2015 and January 2025, the Architect incurred and paid total disbursements in excess of $582,023.11.22 It is reasonable to infer the Owner incurred a similar magnitude or perhaps greater costs and the Stone Supplier lesser but nevertheless still significant costs since it did not participate in the Arbitration. 38 Self-evidently the proceeding caused significant stress to the individual litigants in monetary and non-monetary terms. 39 On any view of the matter, the enormity of the private and public resources incurred in conducting this proceeding through to judgment is grossly disproportionate to the outcome, both overall and having regard to the results of each of the key claims. 15 As against the Builder, the Seventh Cross Action [19A] and Annexure B; as against the Architect, the Ninth Third Party Claim [26] mirrors the defects pleaded against the Builder in [19A.15]. See Principal Reasons [1359]-[1506]. 16 Including the Owner’s application to amend heard on the ninth sitting day. 17 Principal Reasons, Part F. 18 Respondent’s List of Issues for November Trial (FDN 240). 19 Principal Reasons, Part D. The Owner’s other claims against the Architect were addressed in Part G and the Architect’s claim for set off in Part H. 20 Ibid [1]-[4]. 21 FDN 299 [6]. 22 FDN 307, Exhibit MM-20. -- 11 of 74 -- [2026] SADC 40 8 40 These matters are important considerations in the exercise of the Court’s discretion on costs in the particular and exceptional circumstances of this case. PRE-JUDGMENT INTEREST 41 The question of pre-judgment interest only arises as between the Builder and the Owner. For the following reasons, I accept the Builder’s contention that the Owner should not be entitled to interest on the damages award of $49,911.30 including GST made against it. 42 Pursuant to s 39 of the District Court Act 1991 (SA) (District Court Act), the Owner, as the party in whose favour a monetary judgment is granted, is entitled to an award of interest for the whole or part of the amount for which judgment is given, unless good cause is shown to the contrary. Interest is payable at a rate, and for a period as determined by the Court. For a liquidated claim, the period should run from the date the liability to pay the claim fell due.23 43 Section 39 confers a broad discretion on the Court in fixing pre-judgment interest that must be exercised on a principled basis,24 bearing in mind that the function of the award of interest is to compensate a successful applicant for the loss or detriment suffered by being kept out of their money during the relevant period.25 Interest is not awarded on the basis of the use the respondent has had of the money or as punishment. 44 In this case, there is good reason for the Court not to fix any pre-judgment interest in the exercise of its discretion having regard to the Owner’s non- compliance with her contractual obligations for holding cash retention as security for the performance of the Builder’s obligations under the Building Contract. 45 Clause C2.1 of the Building Contract provided for the Owner to withhold 10% of each progress payment made until the value held equated to 5% of the contract price, which she did from March 2013 to March 2014. Clause C2.2 required the Owner to hold the cash retention including interest earned on it, less any bank fees or charges on the account, as trustee for the Builder in a separate bank account designated as a trust account. The Owner admitted in evidence that she knew and understood she was holding cash retention in the sum of $105,85026 but she did not hold it in a separate bank account and therefore interest has not accrued on the cash retention in any separate trust account for the Builder.27 COSTS QUESTIONS 46 As already discussed, despite the commonality of many underlying issues, the primary judgment and the various secondary actions in this proceeding 23 District Court Act 1991 (SA) s 39(2)(b). 24 Duke Group Ltd (in liq) v Pilmer (1999) 73 SASR 64 at [531]. 25 MBP (SA) Pty Ltd Pty Ltd v Gogic (1991) 171 CLR 657 at 663. 26 T392.17-.23; T414.4-.8. 27 25 March 2025, T8.4-.17. -- 12 of 74 -- [2026] SADC 40 9 involved different parties and resulted in mixed successes as between them. Consequently, it is appropriate to approach costs as between the parties to the various primary and secondary actions. 47 The Owner’s submission that a single overarching costs order should be made in the proceeding is therefore rejected as not appropriate. In exercising its discretion on costs, it is appropriate that the Court consider the position between the parties to the various claims separately, taking into account all the relevant circumstances. 48 Adopting this approach, the parties’ contentions give rise to the following broad and overlapping costs questions that ultimately must be weighed in exercising the Court’s discretion on costs as between the parties. As between the Builder and the Owner 49 The Builder raises a question about the nature of the costs orders made on 11 August 2015. It is readily disposed of as a preliminary matter in the Owner’s favour when regard is had to the text of the relevant ruling and is addressed below.28 50 The substantive questions arising between the Builder and the Owner are as follows. 1. In the circumstances of this case, should the final costs orders as between the Builder and the Owner follow the overall event or take account of the parties’ mixed successes on the primary and secondary actions or discrete issues and if so, on what basis? To resolve this question, it is necessary to identify who the truly successful party was overall since both the Builder and Owner contend they were. 2. Do any settlement offers made by the Builder justify a different conclusion? 3. Does the Owner’s conduct in the litigation justify a different conclusion? 4. If the final costs orders should take account of the parties mixed successes, what is the appropriate mechanism? Should separate costs orders be made (necessitating separate taxations) or an order made apportioning costs? 5. If the Builder is entitled to any costs orders in its favour against the Owner, is it appropriate to: a. award interest on any costs paid; or 28 See [108]-[113]. -- 13 of 74 -- [2026] SADC 40 10 b. set-off the Builder’s judgment debt against the Owner’s costs liability; or c. order an interim taxation of the Builder’s disbursements incurred and paid? As between the Owner and the Architect 51 It is also necessary to identify the truly successful party overall as between the Owner and the Architect, acknowledging that neither contends for separate costs orders for different claims or discrete issues. 52 The second substantive question is whether the Architect is entitled to an award of indemnity costs. 53 If the Architect is entitled to an award of indemnity costs, the next question is whether the Court should rescind any existing costs orders adverse to the Architect. 54 Finally, if the Architect is entitled to any costs orders in its favour against the Owner, is it appropriate to award interest on any costs or disbursements paid or set-off the Builder’s judgment debt against the Owner’s costs liability or order an interim taxation of the Builder’s disbursements incurred and paid. As between the Builder and the Stone Supplier and the Owner 55 The first question is whether the Stone Supplier is entitled to all or a significant proportion of its costs of action against the Builder. 56 If so, the second question is whether the Builder is entitled to be indemnified by the Owner for its costs liability to the Stone Supplier. COSTS PRINCIPLES Generally 57 Section 42 of the District Court Act provides that costs are in the discretion of the Court. The discretion as to costs is wide and unfettered but must be exercised judicially.29 Regard should be had to any and all relevant considerations, ignoring any irrelevant considerations, as is the general principle in exercising any discretion.30 58 Two formal offers were made under the 2006 Rules. Otherwise, the applicable costs rules are found in Part 4 of Chapter 14 of the UCR. Whilst there are textual differences between the 2006 Rules and the UCR, there are no 29 Cretazzo v Lombardi (1975) 13 SASR 4 (Cretazzo) at 11 (Bray CJ, Zelling and Jacobs JJ agreeing at 15); Holt v Bunney (No 2) [2020] SASCFC 120 (Holt v Bunney) at [9] (Kourakis CJ, Nicholson and Hughes JJ). 30 Hazeldene’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435 (Hazeldene) at [25] citing House v R (1936) 55 CLR 499 at 505. -- 14 of 74 -- [2026] SADC 40 11 fundamental differences between the 2006 Rules and the UCR when they are read in conjunction with s 42 of the District Court Act.31 59 The general costs principles in the UCR are subject to the applicable presumptive costs rules, other rules and principles and are subject to the Court’s overriding discretion as to costs.32 60 Generally, costs follow the event.33 The general principle enshrined in UCR r 194.5(2) has been found to mean that the party who on the whole succeeds gets the general costs of action unless there are special circumstances justifying another order. 34 This principle applies when “there is a determination by the Court of the merits of the proceeding and a manifestly successful and unsuccessful party.”35 There is manifest success where an otherwise successful party fails on “matters of small importance”36 or a “non-essential issue”.37 61 An award of nominal damages may not be regarded as manifest success. Indeed, in some circumstances the Court may award damages in favour of an unsuccessful respondent where the successful applicant has obtained only a nominal damages award. This is because in reality, the ‘successful’ party lost the litigation and the ‘unsuccessful’ party won.38 The rationale is that it would otherwise be unfair for the winner to be entitled to all their costs where they have raised a plethora of issues on which they were unsuccessful.39 62 Ordinarily, in a monetary claim this is a just outcome because it recompenses the successful party for the costs they have incurred in either being unjustifiably brought to court by the unsuccessful party or required to have recourse to the court to vindicate their rights against the unsuccessful party. 63 Each case must be considered on its own particular facts,40 having regard to the general principle that the usual award of costs to a wholly successful party should be made on the standard costs basis unless there are special circumstances justifying a different order. 31 Holt v Bunney at [9]. 32 UCR r 194.5(1). 33 Latoudis v Casey (1990) 170 CLR 534 at 542- 544, 557 (Dawson J, Brennan J agreeing at 544) and 569 (McHugh J). UCR r 194.5(2). 34 Reid, Hewitt & Co v Joseph [1918] AC 717; Milne v Attorney-General for the State of Tasmania (1956) 95 CLR 460 (Milne) at 477. 35 Bell v Deputy Coroner of South Australia (No 2) [2020] SASC 77 at [16] (Blue J). 36 Milne at 476. 37 Brine v Carter (No 2) [2016] SASC 37 (Brine) at [8] (Blue J). 38 Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 All ER 685; Anglo-Cyprian Trade Agencies v Paphos Wine Industries Ltd [1951] 1 All ER 873. 39 Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 (Bowen) at [4] (Finkelstein and Gordon JJ). 40 Lauro v Minter Ellison (A Firm) (No 2) [2025] SASCA 131 at [19]. -- 15 of 74 -- [2026] SADC 40 12 64 The policy rationale of the just, quick and cheap resolution of the real issues in litigation is firmly entrenched in the costs principles, consistent with the express object of the UCR:41 The object of these Rules is to facilitate the just, efficient, timely, cost-effective and proportionate resolution or determination of the issues in the proceedings governed by these Rules. 65 These policy considerations are reflected in the discretionary factors to which the Court may have regard in exercising its discretion as to costs. Rule 194.6(2) non-exhaustively identifies the following discretionary factors by way of example: (a) any misconduct or unreasonable conduct of a party in connection with a proceeding; (b) any breach by a party of overarching obligations, these Rules or an order of the Court; (c) any breach by a party of the pre-action obligations imposed by Chapter 7 Part 1; (d) the making or not making of an offer by a party to resolve the proceeding; (e) the non-acceptance by a party of an offer made by another party to resolve the proceeding; (f) the value and importance of the relief sought or any relief obtained; (g) any public interest in the subject matter of the proceeding or public benefit from the prosecution or defence of the proceeding; or (h) whether costs awarded are to be met by a person or out of a fund. Note— See also rule 61.16 in relation to pre-action steps and rule 132.11 and rule 132.12 in relation to formal offers. Costs Sanctions for Proceeding in the Wrong Court 66 In nearly all Australian jurisdictions, legislation and court rules prescribe costs sanctions for proceedings brought in a superior court that should have been conducted in a lower court. The policy imperative is to avoid injustice to a respondent by the applicant inflating costs above what is considered reasonable in the circumstances of the results achieved. 67 In this regard, s 42(2) of the District Court Act, provides that: If- (a) an action the recovery of damages or any other monetary sum is brought in the Court; and (b) the action might have been brought in the Magistrates Court; and (c) the plaintiff recovers less than the amount fixed by the rules for the purpose of this paragraph; no order for costs will be made in favour of the plaintiff unless the Court is of the opinion that it is just in the circumstances of the case that the plaintiff should recover the whole or part of the costs of action. 68 Rule 194.5(11) sets the prima facie level at which a successful applicant is to be deprived of costs in this Court. It provides that where the Magistrates Court 41 UCR r 1.5. -- 16 of 74 -- [2026] SADC 40 13 has jurisdiction, the costs of a successful applicant are not payable if the amount awarded is less than $60,000 unless the Court is of the opinion that it would be just in the circumstances of the case to order otherwise. 69 These provisions supersede the historical view that an award of nominal damages was to be treated as success for the purposes of costs because such an award was a “mere peg on which to hang costs”.42 Their purpose is to discourage litigants from bringing claims that fall within the monetary jurisdiction of the Magistrates Court in this Court and protect respondents from being brought unnecessarily into the more expensive court, thereby underpinning the division of jurisdiction between courts.43 70 These provisions confer a discretion on the Court to depart from the prima face rule they prescribe, a discretion that is unfettered and must be exercised judicially on proper principles. The fact that a party seeks declaratory relief or such relief has been granted does not mean that District Court Act s 40(2) and UCR r 194.5(11) do not have prima facie application in this case.44 Whether any case was more appropriately litigated in a lower court and in this case, the Magistrates Court, must invariably depend on the particular facts and circumstances of the case.45 Disproportionate Costs 71 The strong need for economy, cost-effectiveness and proportionality in litigation is reflected in the object of the UCR.46 It is important that the cost of civil litigation to the litigants and the State be minimised consistently with the paramount object of justice. 72 In exercising its discretion on costs UCR r 194.6(2)(f) provides that the Court may have regard to the value and importance of the relief sought or any relief obtained. The magnitude and disproportion of costs incurred to the relief sought or obtained may be relevant factors, particularly where the outcome does not warrant the expenditure of significant or disproportionate private and public resources. The policy rationale is that it is not reasonable or just for a party to be made to incur significant and disproportionate costs where the value and importance of either the relief sought or any relief obtained does not warrant the incurring of such costs. It has been said that proportionality of costs to the value of the subject matter or the result is central to the just and efficient conduct of civil proceedings.47 42 GE Dal Pont, Law of Costs, (Lexis Nexis Butterworths, 5th ed, 2021) at [8.40] citing Beaumont v Greathead (1846) 135 ER 1039 at 1042 (Maule J). 43 Steven v Chandler (1988) 46 SASR 541 at 543-4 (King CJ). 44 Ramsay v Annesley College (No 2) [2013] SASC 145 at [31]-[32] (Blue J). 45 Testel Australia Pty Ltd v Goulding & Ors [2023] SASCA 116 at [226]. 46 UCR r 1.5. 47 Sherborne Estate (No 2), Re; Vanvalen v Neaves; Gilroy v Neaves [2005] NSWSC 1003 at [30] (Palmer J); Lesses v Maras (No 3) [2017] SASCFC 154 at [42]-[46]. -- 17 of 74 -- [2026] SADC 40 14 73 It may be relevant to consider the relief obtained in the context of the relief sought. Where there is significant or gross disproportion, depending on the circumstances this may be a relevant factor to be taken into account as part of the totality of relevant considerations when exercising the Court’s discretion on costs. Significant or gross disproportion may demonstrate unreasonable conduct such as the pursuit of meritless claims or exaggerated claims on quantum. 74 Observations about the importance of ensuring proportionality between the costs awarded and the outcome were made in Canvas Graphics Pty Ltd v Kodak (Australasia) Pty Ltd as follows:48 Whilst there must always be provision made for special or unusual cases, in the majority of cases and this is one, the Court must exercise its discretionary powers so as to ensure that the costs that are awarded to a successful litigant bear some relationship to the measure of its success. It is essential that every effort be made to contain costs. Although the trial was complex - mainly because of the need to explore the technical attributes of the equipment that Kodak had sold to Canvas Graphics - it still remained a basic cause of action in which a dissatisfied purchaser sued its supplier because of faults in the equipment that had been supplied to it. In such a case, it is necessary to keep a firm control on costing issues. They must not be permitted to explode as they obviously have done in this case. 75 Consistent with the object of the UCR, it may be appropriate in exceptional cases for the Court’s final costs orders to reflect its strong disapproval of the pursuit of claims that involve the incurring of significant and grossly disproportionate costs by comparison to the relief sought or obtained because:49 It is intolerable that persons, whatever their means may be, should be exposed to legal costs in resisting claims the subject of an unending stream of amendments and which are found to be totally lacking in foundation either in law or in fact. Mixed Success 76 Where there are multiple issues in a case, the Court does not generally attempt to differentiate between the relative successes and failures in exercising its discretion on costs. 77 Where there is mixed success, depending on the circumstances, it may be appropriate to reflect the mixed success of the parties in the costs orders made. This approach might result in a successful party who has failed on disputed questions of fact or law being deprived of part of their costs of action or being ordered to pay their opponent’s costs on discrete issues.50 It might result in separate costs orders or a single order reflecting the mixed successes of the parties on the issues. 48 [1998] FCA 23 at 24. 49 Qantas Airways Ltd v Dillingham Corporation (Supreme Court of New South Wales, Roger J, 14 May 1987) at 2. 50 Cretazzo at 12 (Bray CJ, Zelling and Jacobs JJ agreeing at 15); Ruddock v Vadarlis (No 2) [2001] FCA 1865 at 11 (Black CJ and French J). -- 18 of 74 -- [2026] SADC 40 15 78 It is well established that a separable issue can relate to any “disputed question of fact or law” before the Court on which a party fails, despite its success overall.51 79 Where there is mixed success, the exercise of the Court’s costs discretion depends upon matters of impression and evaluation. An issue-based approach to costs does not require:52 …a precise arithmetical apportionment of the costs as between the winner and loser of discrete issues. No doubt, the assessment will often be rough and ready. But it will have the virtues of both fairness and reasonableness, which are often lacking in the application of the traditional rule. 80 In A, DC v Prince Alfred College Inc (No 2)53 the Full Court of the South Australian Supreme Court observed that in more recent times, courts more readily modify the general rule recognising that the interests of justice sometimes require a reduction in the costs that would otherwise have been awarded to a successful party, when the party has failed on particular disputed questions of fact or law. Such modification is a response to cases where the issues raised unduly extends the time and expense of litigation, reflecting the important need for economy and efficiency in the conduct of civil litigation. The Full Court further explained that: Just as parties must make a cost benefit and risk analysis decision on whether to bring an action at all, so too must decisions be made about which claims to include within an action. Parties should not be encouraged to add to a claim which has sufficient prospects, in itself, to justify the bringing of an action, other claims, of doubtful merit, on the assumption that the costs of pursuing the latter claims will be recovered because of success on the good claim. In adversarial litigation the parties and their legal advisors carry the primary responsibility for ensuring the cost-effectiveness of litigation because they have a particular knowledge and understanding of the controversy, and the available evidence, which the court cannot know because of legal professional privilege. It is therefore the responsibility of the legal profession to actively consider the affect [sic] of adding doubtful claims, or mounting defences to good claims without any foundation for doing so, on the efficient resolution of the proceedings. In accordance with that duty legal practitioners must give advice on the relative merits of the possible claims and defences and on the cost and time implications of pursuing those claims so that the litigant is in a position to give informed instructions on how to conduct the proceedings. The authorities to which we have referred make it clear that the rule does not only apply to a ‘precise issue in the technical pleading sense’ but extends to any substantial disputed question of fact or law. There is of course a limit to the dissection of an action which is practicably possible. 51 Cretazzo at 12 per (Bray CJ, Zelling and Jacobs JJ agreeing at 15). 52 Bowen at [5]. 53 [2016] SASCFC 27 at [5]-[6] (Kourakis CJ, Gray and Peek JJ). -- 19 of 74 -- [2026] SADC 40 16 On the other hand, the court should not be overly parsimonious in the award of costs to a plaintiff who has won a judgment against a wrongdoer who has denied liability on all of the grounds of the plaintiff’s claim. There can be no precision in the balancing of the tension between the ordinary rule and its qualification. Much will depend on the extent to which the costs of the litigation of the separate issues can easily be separated out and on the reasonableness of the forensic decision of the successful party to pursue, not only the claims on which he or she succeeded, but also those claims on which he or she failed. 81 In Bell v Deputy Coroner of South Australia (No 2), Blue J observed that without limiting the factors relevant to the exercise of the Court’s discretion on costs, orders are more likely to be made reflecting mixed success on issues:54 • the more separate and distinct the issue(s) on which the successful party failed (a separateness assessment); • the greater the proportion of costs of the issue(s) on which the successful party failed out of total costs (a relativity assessment); • the greater the costs of the issue(s) on which the successful party failed (an absolute assessment); • the lesser the merit of the successful party’s case on the unsuccessful issue(s) (a merit assessment). 82 In Brine v Carter (No 2), Blue J observed that in cases of mixed success, the discretion is less likely to be exercised to order that the successful party pay the costs of the unsuccessful party on an unsuccessful issue, but more likely where the successful party conducted its case on the unsuccessful issue unreasonably.55 Settlement Offers 83 The policy rationale underlying the costs rules on settlement offers is to encourage the resolution of litigation at the earliest practicable stage, including before the institution of proceedings. The policy imperatives are clear: to encourage the saving of private and public resources by avoiding the cost and uncertainty of litigation and to indemnify the party who made a reasonable offer of compromise against the costs thereafter incurred. The rationale for increasing the basis of the adverse costs order where there has been an unreasonable non- acceptance or rejection of the offer has been explained as follows:56 This is deemed appropriate because, from the time of the rejection or deemed rejection of the compromise offer, notionally the real cause and occasion of the litigation is the attitude adopted by the defendant which has rejected the compromise. In such circumstances that party should ordinarily bear the costs of litigation. 54 [2020] SASC 77 at [20]. 55 Brine at [9]. Citations omitted. 56 Grbavac v Hart [1997] 1 VR 154 at 16. -- 20 of 74 -- [2026] SADC 40 17 84 These policy objects are reflected in the costs rules and the objects of both the 2006 Rules57 and the UCR,58 the latter rules including in the overarching obligations of the parties and their lawyers, fundamental obligations to use reasonable endeavours to resolve or narrow the scope of a dispute by agreement59 and comply with the Rules.60 These rules provide important guidance to the Court on the importance of the policy objectives of the costs rules and necessarily inform the Court’s consideration as to whether the non-acceptance or rejection of an offer was unreasonable in the circumstances of the case. 85 A settlement offer can be made at any stage of a proceeding. The rules as to settlement offers assume that the parties are well-equipped to make and evaluate offers at any stage of the proceeding, despite a party’s state of knowledge as to its own case and the case put against it changing as the litigation progresses. In O’Brien v Cowie & Anor (No 2) Kourakis CJ explained in the context of the 2006 Rules (and specifically the predecessor to UCR r 132) why it is ordinarily not a sufficient reason for an offeree to prefer to consider an offer later in the proceeding when more is known:61 …Rule 188F also operates on the premise that each party will gain an understanding of the other’s case, sufficient to make or evaluate an offer, through the operation of the rules providing for pre-action and pre-trial discovery. It should also be observed that r 188A expects that in the ordinary course the offeree should be in a position to respond to a formal offer within 14 days of receiving it, and if the offeree contends that it cannot reasonably decide whether to accept the offer in that time, must identify how long is needed and explain why the ‘additional’ time is required. In the ordinary course, therefore, it will not be a sufficient reason that the offeree would prefer to consider the offer at a much later state of the proceedings, when more is known of the respective cases of the parties. The overall effect of the rules as to formal offers is therefore to encourage the parties to make their best assessment on what is known of the case at any point in the litigation when making or considering whether to accept an offer. In that way, the rules encourage the early settlement of litigation. 86 As already mentioned, UCR r 194.6(1) provides that the Court may have regard to any factors it considers relevant in exercising its discretion as to costs including, for example, the making or not making of an offer by a party to resolve the proceeding62 or the non-acceptance by a party of an offer made by another party to resolve the proceeding.63 87 UCR rr 132.10 and 132.11 relevantly provide: 132.10—Relevant offer not accepted (1) In this rule— relevant offer means a formal offer in compliance with rule 132.4 that— 57 2006 Rules r 3. 58 UCR r 1.5. 59 UCR r 3.1(g). 60 UCR r 3.1(i). 61 [2021] SASC 52 (O’Brien) at [47]. 62 UCR r 194.6(2)(d). 63 UCR r 194.6(2)(e). -- 21 of 74 -- [2026] SADC 40 18 (a) was filed and served on the offeree at least 21 days before the commencement of the trial or final hearing of the proceeding or such later date as the Court orders on an application made before the expiration of that period; (b) was and remained open for acceptance at least 14 days after service; (c) relates to an entire action and not merely to part of it; (d) involves genuine compromise; (e) contains a term that the respondent to the action is to pay the costs of the applicant on the standard costs basis up to acceptance of the offer or 14 days after service of the offer (whichever is earlier) or that the parties will submit to any order that the Court may make in the exercise of its discretion; and (f) if it is a contract offer— (i) provides that the consideration payable by one party to the other (disregarding costs) is the payment of money; and (ii) if made by the party who is to pay the money—provides that the money is payable under the terms of the offer within 28 days after acceptance and the party is ready, willing and able to pay the money in accordance with the terms of the offer. (2) When— (a) a relevant offer is made by an applicant in an action; (b) the offer is not accepted by a respondent; and (c) the applicant obtains judgment that is no less favourable to the applicant than the terms of the offer, then— (d) the costs incurred in respect of the action up to 14 days after service of the formal offer are unaffected by the making of the formal offer; and (e) subject to the overriding discretion of the Court, the applicant is entitled to an order against the respondent for the applicant’s costs of the action to which the relevant offer relates thereafter on an indemnity basis. 132.11—Costs in other cases (1) This rule applies in cases when rule 132.10 does not apply. (2) When— (a) a party has made a formal offer; (b) the offer was not accepted; and (c) judgment is granted in respect of the action or part of an action the subject of the offer on terms no less favourable to the offeror than the terms of the offer, the Court is to take these matters into account on the question of costs. (3) Without affecting the generality of the discretion of the Court, in exercising its discretion as to costs under subrule (2), the Court may— (a) order that the offeree pay the costs of the offeror in respect of the action or the part the subject of the offer from 14 days after service of the formal offer on a specified basis; (b) order that the offeree bear its own costs in respect of the action or the part the subject of the offer from 14 days after service of the formal offer; or (c) make such other or further order as to costs as it thinks fit. (4) Without affecting the generality of the discretion of the Court, in exercising its discretion as to costs, if the Court considers that a party unreasonably rejected a formal offer or failed to make a formal offer, the Court may— (a) order that that party pay the costs of the opposing party after the rejection or date when an offer should have been made on a specified basis; -- 22 of 74 -- [2026] SADC 40 19 (b) order that that party bear its own costs after the rejection or date when an offer should have been made; or (c) make such other or further order as to costs as it thinks fit. 88 A comparison of these rules shows that UCR r 132.10 provides for an entitlement to indemnity costs after non-acceptance of a complying formal offer subject to the Court’s overriding discretion. It is for the offeree to persuade the Court that the overriding discretion should be exercised in its favour in all the circumstances to disentitle the otherwise entitled offeror to indemnity costs.64 89 Where UCR r 132.10 does not apply, r 132.11 applies and r 132.11(2) provides that if a party has made a formal offer that has not been accepted and judgment is granted on terms no less favourable than the terms of the offer, the Court is to take these matters into account on the question of costs. The unreasonable rejection of a formal offer is expressly referenced in r 132.11(4) and is a critical factor to take into account.65 90 There is no presumption about the costs consequences of any non- compliance with the terms of any formal offers where UCR r 132.10 does not apply. The operation of this rule is intended to be beneficial in terms of encouraging settlement but not at the price of penalising unsuccessful litigants from bringing their dispute to Court. 91 Non-compliance with the Rules and the terms of any formal offers are not to be interpreted in an unduly technical or restrictive manner.66 92 It is well established that UCR r 132.11 effectively reflects and formalises the costs principles established in Calderbank v Calderbank67 as regards informal offers.68 93 In Trinity College v Commissioner of State Taxation (No 2) Blue J observed that that one set of established circumstances justifying a special costs order (in contradistinction to the usual order) is when it is established that one party unreasonably rejected an informal offer of compromise by the other party to resolve the action under which the offeree would have been better off than under the Court’s judgment following trial. Ordinarily and subject to the Court’s overriding discretion, such circumstances arise when:69 1. The party seeking the special costs order made an informal offer to the other party; 64 O’Brien at [45] considering the predecessor to UCR r 132.10 and r 188F of the 2006 Rules. 65 Phantom Precision Engineering Pty Ltd v Luscombe (No 2) [2021] SASC 103 (Phantom) at [22] (Lovell J). 66 Public Trustee v Newman (2012) 112 SASR 299 at [18]-[20]; James v Royal Bank of Scotland (No 2) [2015] NSWSC 970 at [149]-[150]. 67 [1975] 3 All ER 333. 68 Roberts v Roberts [2021] SASC 91 at [19] (Blue J). 69 Trinity College v Commissioner of State Taxation (No 2) [2024] SASC 41 (Trinity) at [45]. Citations omitted. -- 23 of 74 -- [2026] SADC 40 20 2. The offer was an offer to resolve the action; 3. The offer involved genuine compromise; 4. The offeree would have been better off accepting the offer compared to the position under the court’s judgment; and 5. It was unreasonable for the offeree not to accept the offer. 94 The satisfaction of all the identified elements does necessarily require the making of a special costs order, nor is such an order precluded by the absence of one, although that may be highly relevant. It is necessary to consider all the relevant circumstances. Finally, the onus of proof and persuasion is on the party seeking a special costs order by reason of the non-acceptance of an informal offer.70 95 The assessment of the critical element of unreasonableness in not accepting the informal offer is objective and assessed at the time of non-acceptance by reference to matters known or which ought to have been known by the offeree at the time. The offer is not to be assessed with the benefit of hindsight:71 I turn to whether it was unreasonable for the respondent to have rejected the offer. The onus rests with the appellant as the party seeking indemnity costs to prove why the rejection of the Calderbank offer was unreasonable. The Court should be careful not to assess whether the rejection of a Calderbank offer was reasonable through the prism of hindsight. The reasonableness of the refusal must be considered by reference to the situation at the time the offer was made, not solely by reference to the ultimate outcome of the proceedings. More broadly, failure to accept a Calderbank offer does not create a presumption in favour of the offeror to an indemnity costs order, even where the offeror ultimately obtains a better result. A Calderbank offer is a factor to be taken into account as part of the totality of relevant considerations when exercising the Court’s discretion to award indemnity costs. 96 Unreasonableness must be established on clear grounds.72 97 The non-exhaustive circumstances relevant in assessing unreasonableness include:73 • the reasonableness of the offer and its rejection • the stage of the proceedings when the offer is made • the time allowed to consider the offer • the extent of the compromise in the offer 70 Ibid at [48]. 71 Phantom at [22] (Lovell J) (emphasis included). 72 Chaina v Alvaro Homes Pty Ltd [2008] NSWCA 353 at [113] (Basten JA, Giles JA agreeing at [1] and Young CJ agreeing at [118]); Trinity at [64]. 73 See Hazeldene at [23] and [25] (Warren CJ, Maxwell P and Harper AJA); Nominal Defendant v Dighton (No 2) [2012] SASCFC 97 at [8] (Sulan, Anderson and David JJ). -- 24 of 74 -- [2026] SADC 40 21 • the prospects of success at the time of the offer • the clarity of the terms of the offer • whether the offer foreshadowed that indemnity costs would be sought if the offeree rejected it 98 The mere fact that the offeree would have been better off accepting the offer does not in itself establish unreasonableness.74 Disentitling Conduct 99 In Oshlack v Richmond River Council McHugh J said:75 The traditional exceptions to the usual order as to costs focus on the conduct of the successful party which disentitles it to the beneficial exercise of the discretion. In Anglo- Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd, Devlin J formulated the relevant principle as follows: "No doubt, the ordinary rule is that, where a plaintiff has been successful, he ought not to be deprived of his costs, or, at any rate, made to pay the costs of the other side, unless he has been guilty of some sort of misconduct." "Misconduct" in this context means misconduct relating to the litigation, or the circumstances leading up to the litigation. Thus, the court may properly depart from the usual order as to costs when the successful party by its lax conduct effectively invites the litigation; unnecessarily protracts the proceedings; succeeds on a point not argued before a lower court; prosecutes the matter solely for the purpose of increasing the costs recoverable; or obtains relief which the unsuccessful party had already offered in settlement of the dispute. 100 Again, the policy rationale for depriving an otherwise successful party of their costs or requiring them to pay the other party’s costs is because their disentitling conduct has needlessly prolonged the litigation and wasted time and both private and public resources. Indemnity Costs 101 The principles relevant to an award of indemnity costs are well-established. It is their application that is the subject of contention between the Owner and the other parties in this case. 102 Departure from the general principle that costs are awarded on the standard costs basis may be appropriate if there is some special or unusual feature of a case:76 74 Lodestar Anstalt v Campari America LLC (No 2) [2016] FCAFC 118 at [19] (Allsop CJ, Greenwood, Besanko, Nicholas and Katzmann JJ); Phantom at [22] (Lovell J). 75 (1998) 193 CLR 72 at [69] (citations omitted). 76 Fountain Selected Meat (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397 at 401 (Woodward J) (Fountain). See also Colgate-Palmolive Ltd v Cussons Pty Ltd (1993) 46 FCR 225 at 230-231: Sands v Channel Seven Adelaide Pty Ltd & Anor (No 2) [2009] SASC 365 at [6]; DKL v LYK (No 2) [2019] SASC 160 at [25]-[28] (Doyle J). -- 25 of 74 -- [2026] SADC 40 22 I believe that it is appropriate to consider awarding “solicitor and client” or “indemnity” costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion. 103 Indemnity costs are defined in UCR r 191.1 as being costs which are a complete indemnity against the costs incurred by the person entitled to payment of costs in the proceeding (or the relevant part of the proceeding) except to the extent that the costs are shown by the liable party to have been unreasonably incurred. 104 Indemnity costs are not punitive but intended to compensate a party fully for costs incurred where the Court considers that it was unreasonable for that party to have been subjected to that expenditure by the other party.77 Indemnity costs are appropriate because a party’s unreasonable conduct has needlessly caused or increased the other party’s costs. 105 Such circumstances may include allegations which ought to never have been made, where the case is unduly prolonged by groundless contentions or where a party properly advised should have known that it had no chance of success and persisted with a hopeless case. 106 There is no exhaustive list of the circumstances that may warrant the exercise of the Court’s discretion in awarding indemnity costs. 107 In the trial context, a case does not necessarily have to be hopeless (that is have no chance of success) but it is sufficient if it proceeds without apparent regard to the significant deficiencies in its evidence.78 However, there is nothing in itself improper or unreasonable in the pursuit of claims involving legal difficulty.79 COSTS - AS BETWEEN THE BUILDER AND THE OWNER Costs of Action to 11 August 2015 108 The Builder seeks 85% of its costs of action from the Owner up to and including 11 August 2015 on the standard costs basis on two grounds. 109 First, that the costs order made on 11 August 2015 by Tilmouth J is “perhaps unclear” as to whether it relates to the costs of the action in general80 or to the applications the subject of his decisions delivered in June and July of 2015.81 77 Melbourne City Investment Pty Ltd v Treasury Wine Estates Ltd (No 2) [2017] FCAFC 116 at [5] citing Hamod v New South Wales (2002) 188 ALR 659 at [20] (Gray J, Carr J agreeing at [26] and Goldberg J agreeing at [27]). 78 Yates Property Corporation Pty Ltd v Boland (No 2) (1997) 147 ALR 685 at 692 (Branson J). 79 Ibid at 690. 80 Written Submissions of Builder (FDN 287) [8]. 81 Cirocco Constructions Pty Ltd v Clarke [2015] SADC 98 (Cirocco (No 1)); Cirocco Constructions Pty Ltd v Clarke (No 2) [2015] SADC 107 (Cirocco (No 2)). -- 26 of 74 -- [2026] SADC 40 23 Secondly, that it would otherwise be appropriate for the Builder to have 85% of its costs of action up to and including 11 August 2015 on the standard costs basis because the proceedings primarily addressed the Builder’s application for summary judgment. 110 The Owner opposes any such order. 111 The Builder’s position is untenable having regard to the text of his Honour’s ruling on the application for costs before the Court in 2015.82 It follows that no clarification is required as to the terms of the costs order made on 11 August 2015 in the Builder’s favour. The ruling expressly states that the costs order made addresses the two applications83 determined in June and July 2015. 112 The Builder previously acknowledged as much in its formal offer of settlement.84 113 The Builder’s second contention lacks merit. Self-evidently, the costs order covers the costs incurred in pressing the two applications the subject of the costs order. There is no cogent reason for the Court to exercise its discretion on costs by treating the Builder’s cost of action up to and including 11 August 2015 as a separate issue distinct from its costs of action generally or otherwise interfering the costs orders made by Tilmouth J. Should costs follow the overall event or the issues and if so, on what basis? Conclusion 114 As between the Builder and Owner, in the circumstances of this case it is appropriate for the final costs orders to take account of their mixed successes on discrete claims, reflecting the separation of key claims adopted in conducting the Arbitration and the trial. 115 Having regard to their mixed successes on the key claims, it is appropriate that there be a separate costs order in the Builder’s favour on the stone issues on an indemnity costs basis but no order as to costs on the balance of the Owner’s cross action including the Arbitration or on the claims and issues determined at trial on the Builder’s primary action. My reasons follow. The Stone Issues Separate Costs Order 116 The Owner submits there is no warrant for treating the stone issues separately. I disagree for the following reasons. 82 Ruling Delivered on 11 August 2015 T30.19. 83 The first concerned the jurisdiction of the District Court to hear the Builder’s claim and the second concerned the Builder’s claim for summary judgment. 84 FDN 285, Exhibit NJA-1 at [U]. -- 27 of 74 -- [2026] SADC 40 24 117 The Builder was manifestly successful against the Owner on the separate cross action she brought against the Builder for the stone defects.85 118 Apart from the de minimis amount of $200 for one chipped stone (out of 119) for which the Builder was liable, the Owner’s claims about other defects (stone colour, pattern, mortar colour, quality, workmanship and quarry sap) were wholly unsuccessful and dismissed. The Owner failed to prove any stone defects under the varied Building Contract.86 119 The stone defects dominated the proceeding as the singularly most significant defect item alleged by the Owner, both in terms of the complexity of factual and legal issues arising and the quantum claimed.87 120 There was significant contention over the informally varied contractual criteria for stonework and whether the built stonework conformed to specification, entailing a detailed inquiry into the parties’ dealings since late 2012 and the Owner’s evolving complaints about the external stonework not conforming to her (variable) requirements. 121 The private and public resources involved in ventilating the stone issues were significant. The stone issues added considerably to the costs incurred in determining the balance of the claims in the proceeding. This is evident from the time taken at trial in addressing the stone issues. On my assessment, the stone issues occupied about 80% of the trial sitting days.88 122 The stone issues involved considerable pre-trial preparation. The documentary evidence was extensive. Numerous lay and expert witnesses were called. All parties retained counsel, as was appropriate given the importance and claimed value of the issues in dispute. The Owner’s stone claim was the subject of numerous amendments and interlocutory challenges. 123 Had the Owner not pressed her unsuccessful claims for stone defects, the significant work and cost involved in preparing for trial would have been avoided and the trial itself would have been reduced from 16 to a few sitting days. 124 In these circumstances, it would be quite unjust and inappropriate for costs to follow the overall event as contended by the Owner and deprive the Builder of its costs on the stone issues. Where the Owner succeeded on other claims, her successes were limited both in monetary and non-monetary terms and the costs 85 Principal Reasons, Part E. 86 Principal Reasons [1345]-[1697]. 87 The Owner claimed remediation costs for replacement of all the external stonework on four alternate bases depending on the date of assessment, varying from $474,364.11 including GST (as assessed in 2022) to $178,210 including GST (as assessed in 2015) plus costs totalling some $24,000 for vacating the premises for 22 weeks whilst the stone remediation works were carried out. 88 There were 16 sitting days in July 2022. Other stone issues occupied approximately 35% of the second part of the trial in November 2022 and closing oral addresses. All 13 witnesses called in November 2022 addressed the stone issues at least in part. -- 28 of 74 -- [2026] SADC 40 25 involved were modest in comparison to the significant private and public resources involved in litigating the stone issues. Having regard to the significant and grossly disproportionate costs the Owner caused the Builder to incur in successfully defending her stone defects case, it is therefore appropriate to impose on the Owner an obligation to pay the Builder’s costs of the stone issues. Indemnity Costs 125 The Owner accepts her stone defects claim was unsuccessful (despite her overall success) but submits there is also no warrant to award costs on any higher basis than the standard costs basis. She contends it was reasonable for her to maintain her stone defects claim through to judgment and there are no considerations otherwise justifying an award of indemnity costs. To put in context her version of the history of the proceeding, she made long and detailed submissions justifying why it was reasonable for her to persist with her stone defects claim.89 126 The Builder disagrees and seeks its costs of the stone issues on an indemnity costs basis on four grounds which it contends justify such an award individually and collectively. Builder’s Formal Offer 127 The first ground is the Owner’s non-acceptance of the Builder’s formal offer filed on 28 October 2016. For the reasons discussed below, I am not satisfied that the Owner’s non-acceptance of the Builder’s offer justifies an award of indemnity costs on the stone issues from November 2015.90 Hopeless Case 128 The Builder’s second ground for indemnity costs on the stone issues is the ‘hopelessness’ of the Owner’s stone defects case. The Builder contends the Owner should have realised she could not prove the stonework was non-compliant with the varied contractual requirements from the outset and, properly advised, should have known her stone case was hopeless and had no chance of success. The Builder points specifically to the Owner’s difficulties in pleading her stone case and the lack of evidence on breach, submitting she had multiple opportunities to reassess her case as it evolved and expanded. The Builder contends that the Owner’s justifications of the merits of her stone defects claim are not significant because they address the contractual specification for stonework and do not confront her inability to prove non-compliance with the contractual specification (whether the pleaded or unpleaded criteria) from the outset. 129 Taking care not to be wise after the fact, there is considerable force in the Builder’s submissions. This is not a case where the hopelessness of the Owner’s stone defects case only became apparent during or after trial or the Owner had a 89 Written Submissions of the Respondent (Owner) Costs (FDN 292) [13]-[60]. 90 See [197]-[235] below. -- 29 of 74 -- [2026] SADC 40 26 good case but lost it at trial. Nor is it a case where the difficulty or the complexity of the issues simply justifies the reasonableness of the Owner in pursuing her stone defects case to trial. Contrary to the Owner’s submissions, the ultimate outcome on stone was not “very much an open issue”.91 There were fundamental difficulties with her stone defects claim from the outset and the essential problem was and remained her inability to prove non-compliance with the (variable) contractual specification for stone. 130 The following history of the Owner’s pleadings is telling. 131 The Owner’s first defence and cross action filed in June 2015 against the Builder impermissibly identified defects by reference to defects lists and did not expressly identify any stone defects.92 Her second defence and cross action filed in December 2015 introduced the stone defects as Item 15.1 of the first Scott Schedule in the following terms:93 Sandstone to all external walls comprises discoloured stones and stones outside of the specified and agreed colour range. $169,950.00 132 The Owner relied on the July estimate of Mr Allen for the quantum claimed.94 His estimate was self-evidently partisan, excessive and unreliable.95 133 In her second defence and third cross action filed on 21 March 2017, the Owner amended Item 15.1 of the Scott Schedule to introduce complaints about mortar mix, chipped, mismatched, saw marked and packaging marked stone.96 There was still no specificity about the ‘specified and agreed colour range’ and no complaint about workmanship or joints. In the Amended Scott Schedule filed with her third defence and fourth cross action on 22 November 2017, the Owner pleaded alternate measures of damages depending on whether 15% ($106,920) or 20% or more ($195,250) of the stone were to be replaced based on Mr Allen’s increased estimates that were again self-evidently partisan, excessive and unreliable. 134 On 14 December 2018, the Owner introduced the first form of her substantive plea about stone colour, chipped and damaged stone in her fourth defence and fifth cross action.97 Her pleaded case alleged the stone was not of the best quality because it was discoloured by ‘quarry sap’ and not consistent in colour and “being in the range of colours 2 to 3”. Neither AI:04 nor AI:07 were pleaded against the Builder. There were no defects pleaded as to joints (size or alignment), workmanship or a failure to provide samples or build a sample panel for approval. 91 25 March 2025, T83.18-.20. 92 Defence, Cross Action and Third Party Action (FDN 19) [19]. 93 Second Defence and Cross Action (FDN 33). 94 Exhibit R3.253. 95 Principal Reasons [130]-[152]. 96 Second Defence and Third Cross Action (FDN 50). 97 Fourth Defence and Fifth Cross Action (FDN 70) [19A]. -- 30 of 74 -- [2026] SADC 40 27 135 On 20 August 2019, the Builder succeeded in striking out critical parts of the Owner’s fifth cross action and the associated Scott Schedule including all the substantive stone defects pleas because they did not identify which individual stones were non-compliant or why, impermissibly alleging non-compliance by reference to the overall effect of the stone colour.98 136 On 1 July 2020, after argument before O’Sullivan J, the Owner was granted leave to file her fifth defence and sixth cross action against the Builder (and the fifth third party statement of claim against the Architect).99 The amendments addressed the issues the subject of Master Norman’s decision and pressed alternative cases on breach depending on whether the stonework was viewed as a whole or on a stone by stone basis as per Annexure B that was derived from Associate Professor Danvers’ draft second report. AI:04 was pleaded for the first time but not as part of the contractual criteria for stone colour. This was an important consideration in the determination of the Owner’s unsuccessful and very late application to amend her stone claim at trial. 137 As against the Builder, the trial started on the Owner’s fourth defence and fifth cross action and finished on her fifth defence and seventh cross action. The Owner’s application to amend her pleaded specification for stone colour made mid-trial failed at trial and on appeal. 138 When this history is properly appreciated, many of the Owner’s submissions about the historical context of the stone issues are not compelling. Moreover, her submissions focus on the other parties’ cases and overlook the necessity for her to prove her own case. Her complaints that no party took any step to obtain evidence of the colour categories or assess the colour of laid stone demonstrate the essential difficulty with her stone defects claim that, properly advised, should have been apparent from the outset. 139 I do not accept that the difficulty and complexity of the issues raised by the Owner’s stone defects case support her position. Despite the great number of items and granular detail and persistence with which the Owner’s claims were pursued, her claim was and remained a basic cause of action for defective building work. It was always necessary for her to prove non-compliance with the varied contractual specification for stone (whatever the criteria). 140 Most fundamentally, it was unreasonable for the Owner to maintain her case on the primary defect of stone colour on the basis of a single stone in the built stonework (‘SC 135’) as representing the specified and agreed colour range. It was unreasonable to persist with her case on the basis of a single uniformly off- white cream coloured reference stone that had been identified from memory in 98 Master Norman’s decision delivered on 20 August 2019 (FDN 80). Orders were also made striking out [19] and the associated Scott Schedule Annexure 1 (other than Item 15.1) for failing to identify in sufficient detail the defective works and impermissibly pleading the defects listed in a series of documents that were unclear and inconsistent. 99 Record of Outcome 1 July 2020 (FDN 98). -- 31 of 74 -- [2026] SADC 40 28 June 2015 as representing the colour selection she made in the Stone Supplier’s Gillman yard in April 2013. This was always an unmeritorious approach to proof of her case on breach. It was a particularly unmeritorious and irrelevant metric having regard to the original design intent and specification of a multi-coloured natural stone (Basket Range sandstone) and her subsequent selection of a range of light-coloured Tasmanian sandstone that was also a naturally variable product in colour and pattern. 141 By failing to connect ‘SC 135’ with the varied contractual specification for stone colour, the Owner failed to address what objectively comprised and did not comprise the Stone Supplier’s colour categories, despite her (varying) pleaded and unpleaded cases on the selected colour range. The Owner tacitly accepts this criticism by her submission that she had no way of establishing “what the gradations of colour of stones of colours 2 and 3 were”, although she contends this supports her position.100 142 This was a fundamental gap in the evidentiary foundation of the Owner’s case on stone colour in terms proving both the contractual specification and breach. Properly advised, the Owner should have appreciated that on breach her case was ‘hopeless’ and she had no prospects of successfully proving breach on the available evidence. There is no objective merit in the Owner’s submission that her stone defects claim was worth pursuing because she knew what she believed she asked for, she knew what happened at the meeting she attended and she could look at her house and know “it’s not what she believes is the colour”.101 143 Accepting that there is an important difference between a case being sufficiently meritorious to pursue and being ready for trial, the essential difficulty with the Owner’s stone defects claim was not resolved by the expert evidence she adduced. 144 Associate Professor Danvers’ reports delivered in September 2019 and May 2022102 became the basis of the Owner’s stone defects case presented at trial.103 145 Properly advised, the Owner should have known there were serious and obvious deficiencies in the reliability of Associate Professor Danvers’ method of assessing non-conforming stones (colour, chipping and damage).104 Despite his view of the importance of portable stone samples, Associate Professor Danvers used a paint swatch to assess colour conformance and then abandoned it in favour of his memory.105 He disclaimed expertise in the chemistry of ‘quarry sap’ and its removal, yet purported to identify affected stones.106 100 Written Submissions of the Respondent (Owner) Costs (FDN 292) at [26]. 101 26 March 2026, T137.5-.9. 102 Exhibits R3.410 and R3.411. 103 Principal Reasons [77]-[82]. 104 Ibid [113]-[122]. 105 Ibid [120]-[122]. 106 Ibid [101]. -- 32 of 74 -- [2026] SADC 40 29 146 Associate Professor Danvers expressed opinions on the very broad spectrum of colour and sedimentary patterns in Tasmanian sandstone that were inconsistent with his instruction to assume that a single uniformly off-white cream coloured stone represented the contractual specification for stone colour. Having regard to the important characteristics of Tasmanian sandstone that were readily apparent from looking at the Stone Supplier’s range, Associate Professor Danvers went on to observe that it would not be possible for any stone supplier to provide absolute consistency with the sample stone ‘SC 135’ and that it would be very difficult for the Stone Supplier to provide, other than a small percentage of stones, that would be a reasonably close match to it. 147 Despite these observations, Associate Professor Danvers then proceeded to assess non-compliance by reference to an irrelevant and too narrow tolerance having regard to the natural characteristics and variability in the lightest range of Tasmanian sandstone. Plainly, the controversy was about the limits of the selected colour range and not whether ‘SC 135’ fell within the contractual specification for colour. 148 The Owner and her legal advisers should have appreciated that these expert reports did not assist her case on breach. The Owner saw the Stone Supplier’s range of Tasmanian sandstone at the Stone Supplier’s Gillman yard and in the as built walls at Kermode Street that she inspected with Mr Williams of the Architect and on her own house walls. 149 Instead, despite numerous inadmissible passages in these expert reports, the Owner submits she was buoyed by Associate Professor Danvers’ opinions about defects in the stonework and his second report was powerful evidence that she had a basis for proving her stone defects claim. On the basis of this evidence, she continued not only to press her claim as to existing stone defects but expanded it by introducing a new case about the quality of workmanship in July 2020.107 150 The evidence adduced by the Owner to prove the other stone defects suffered from similar fundamental deficiencies.108 Properly advised, the Owner should have appreciated that her expert evidence was entirely deficient, and she had no means of proving non-compliance with the varied contractual specification for stone (whatever the criteria). 151 Contrary to the Owner’s submission, I do not accept that these deficiencies were resolved by the absence of opposing expert reports. 152 It does not assist the Owner on costs to point out that her case was generally consistent with the Stone Supplier’s pleaded case until April 2020 when “a very late and substantial change” was made alleging the selection of the lightest grade of sandstone 1-4 instead of the previous plea of “white, very light” stone.109 This 107 Record of Outcome 01 July 2020 (FDN 98). 108 Principal Reasons [1568]-[1660]. 109 Written Submissions of the Respondent (Owner) Costs (FDN 292) [39]-[40]. -- 33 of 74 -- [2026] SADC 40 30 change was not late having regard to her evolving stone defects case and that the Stone Supplier’s original plea was only made on 23 August 2018 following its then recent joinder.110 In any event, this change occurred more than two years before the trial commenced. 153 The Owner further contends that the Builder and the Architect did not plead positive or detailed defences to early versions of her claim111 and there were inconsistencies and changes in their cases at various times. This made it difficult for her to assess the merits of her stone case. I do not place great weight on these matters. In the absence of any formal admissions, it was still necessary for the Owner to prove non-conformity with the proven varied contractual specification for stone despite any deficiencies and inconsistencies in the other parties’ cases and assess the merits of her case on the available evidence accordingly. 154 For these reasons and contrary to her submissions, the basis upon which the Owner compiled her evidence on the stone issues was not reasonable. 155 It was also not reasonable for the Owner to advance her stone defects case on the ‘best available’ evidence because “it was her case” and it was open on her case that the Architect did not “have a record of [her] selection and put itself in a position where it could assess what was supplied against [her] selection”.112 Knowing that there was no record of the stone selected created uncertainty, presenting greater rather than less risk to her prospects of successfully proving her stone defects case. It certainly did not make her stone defects claim open on the available evidence in the absence of objective proof of which stone was non- compliant and why. 156 It is necessary to mention the Owner’s unmeritorious submission that her stone defects claim on colour was not ‘hopeless’ and it was “wholly reasonable” for her to maintain her claim having regard to the box of stone samples obtained in August 2015 (Exhibit R31) from the Stone Supplier and labelled by Ms White in circumstances where Mr Calabrese’s evidence given on the last day of the July trial was ultimately preferred.113 The Owner submits that until Mr Calabrese gave evidence, she was at no time informed that the matters in Ms White’s affidavit were not agreed. 157 Contrary to her submissions, it is not correct that the parties proceeded at trial on the basis of agreed facts about Exhibit R31 as described by Ms White in her affidavit. The Builder objected to the tender of R31 on the ground of relevance114 in circumstances where the Owner’s solicitor first proposed draft agreed facts 110 Defence to Third Party Claim (FDN 67). 111 Specifically, since the Owner’s pleaded case on stone colour was first introduced in the form ventilated at trial in her Fourth Defence and Fifth Cross Action (FDN 70) [19A] and expanded to include complaints about the quality of the stonework in July 2020 in her Fifth Defence and Sixth Cross Action (FDN 102) [19A]. 112 Written Submissions of the Respondent (Owner) Costs (FDN 292) [27]. 113 Ibid [57.9]. 114 Principal Reasons [825]. -- 34 of 74 -- [2026] SADC 40 31 about the sandstone samples on 4 July 2022 (two days before trial) and neither the Builder nor the Architect responded to the Owner’s invitation to agree the proposed draft. Silence does not constitute agreement. Since Ms White’s affidavit115 was not sworn until 15 July 2022 (the eighth sitting day in the July trial), the Owner cannot have proceeded on the basis that Ms White’s version of events occurred precisely as she described for very long. 158 More importantly, the determination of the stone colour defect did not turn on Exhibit R31 or Ms White’s affidavit. These samples were of limited relevance and utility in resolving the dispute about what colour stone was required for the reasons explained in my principal reasons.116 These samples demonstrated the limited utility of single samples identifying a range of variable coloured stone when, as a natural product, no two stones are alike.117 That the sample stones were described as within two colour categories (‘1 to 2’ or ‘2 to 3’) reinforces the fact that the Stone Supplier’s colour categories were ranges, not single entity colours, and what comprised any specific colour category was impressionistic.118 159 The Owner’s submissions about the reasonableness of her case on AI:04 (which was unpleaded),119 the second June 2013 meeting and her expectation that her evidence would be accepted by the Court as reliable also do not assist her. Had findings on these matters been made in the Owner’s favour, they would not have resolved her failure to establish a base for assessing contractual conformity of the supplied and laid stone and would not have led to a favourable outcome overall on the stone defects. She still would have failed because she could not prove which stones were supplied and laid in breach of the varied contractual specification for stone (whatever the criteria). 160 Properly advised, the Owner should have appreciated that her approach to proving non-compliance with the varied contractual specification for stone made her case on stone defects hopeless. In these circumstances, I am satisfied that this is one of those special and exceptional cases in which it would be appropriate, as between the Builder and the Owner, for the Builder to have its costs of the stone issues on an indemnity costs basis. Disproportionality 161 The Builder’s third ground for indemnity costs on the stone issues is that the costs incurred were extraordinarily disproportionate relative to the real value of the outcome. 115 Exhibit R30. 116 Principal Reasons [839]-[843]. 117 Ibid [829]. 118 Ibid [830]-[824]. 119 Ibid [515], [1482]-[1484] and [1495]-[1504]. It was not strictly necessary to resolve how AI:04 should be read because it was not the Owner’s pleaded case on stone colour and ultimately, the Owner did not require stone of colours ‘1’ to ‘3’ to be replaced. -- 35 of 74 -- [2026] SADC 40 32 162 In this case the sheer magnitude and gross disproportionality of the Builder’s costs incurred on the stone issue relative to the relief granted are important considerations, weighing heavily in favour of an award of indemnity costs on the stone issues having regard to the merits of the Owner’s stone case. It was incumbent on the Owner and her legal advisers to ensure the cost-effectiveness of her case and actively consider the costs implications of pursuing her stone defects case to trial, particularly in circumstances where there was continuing uncertainty about the sequence of events such that key aspects of her case were marginal and on breach, her case was hopeless from the outset. 163 The Owner submits it simply does not follow that the costs incurred by the Builder were disproportionate because the costs were high and outcome low because many factors affect the quantum of the costs incurred. In this case, the Owner submits it is important to take into account how the Builder and the Architect defended her stone defects claim. She points specifically to her opponents’ lack of engagement on the key allegations about the stone defects including the absence of opposing expert reports. The Owner’s submissions are unmeritorious having regard to the evolution of her stone defects claims and the lack of any reliable evidentiary foundation on breach, including the self-evident and patent deficiencies in the expert reports she adduced. Disentitling and Other Conduct 164 For its fourth ground for indemnity costs on the stone issues, the Builder referred in the most general terms to an abandoned injunction application, the number of adverse costs orders already made, eight amendments to the cross action and other matters.120 165 Apart from the pleadings history, the Builder did not develop its submissions as to why these matters entitled the Builder to indemnity costs in any detail. In the absence of any explanation about why these matters justify an indemnity costs order on the stone issues specifically, I have not given them any weight. 166 Having regard to the history of the Owner’s pleaded case on stone defects that prolonged the interlocutory stage of the proceeding, I accept this is a relevant consideration weighing in favour of an award of indemnity costs in circumstances where the Owner’s stone defects case was hopeless from the outset. It is not of itself determinative. Conclusion 167 Having regard to the hopeless merits of the Owner’s stone defects case on breach, the significant magnitude and gross disproportionality of the costs incurred in opposing the stone issues and the pleadings history, it is appropriate that the Builder recover from the Owner its costs of the stone issues on an indemnity costs basis. 120 Written Submissions of Builder (FDN 287) [46]-[51]. -- 36 of 74 -- [2026] SADC 40 33 The Arbitration 168 Ultimately, the Builder’s liability to the Owner for the other defects determined by the Award as adopted, was $45,373.91121 (taking into account a credit of $18,900 for insurance proceeds paid directly to the Owner) and the Architect’s liability to the Owner was $5,142.28.122 The Stone Supplier’s liability to the Builder for its claim of contribution/indemnity was $12,887.21 for acid damaged items.123 On a direct application of the costs rules, in circumstances where the Owner’s success in monetary terms was less than the $60,000 threshold provided by UCR r 194.5(11), it would be a reasonable and fair starting point for there be no order as to costs on the other defects and Arbitration issues. 169 Whilst there is consensus about this starting point, there is contention as to whether the Builder should be entitled to its costs of successfully defending the items where the Owner failed. 170 The Owner contends that the Court should not separate out the costs of the Arbitration. The Builder disagrees, submitting the Owner should be penalised for the significant and disproportionate costs she caused the Builder to incur in the Arbitration relative to the outcome. The Builder seeks an award of 90% of its costs of the Arbitration on the standard costs basis, acknowledging that the criteria for indemnity costs are not met.124 171 Having determined that it is appropriate to separate out the costs of the stone issues, the question then arising is whether the Arbitration issues should also be the subject of a separate costs order in the Builder’s favour. 172 The other defects claims were referred to the Arbitration and determined by the Award adopted by the Court. Self-evidently, the Owner’s other defects claims involved separate and distinct issues from the stone issues that dominated the trial and the subsidiary issues heard in the second part of the trial. 173 There is no evidence about the quantum of the actual costs of the Arbitration hearing incurred by any party or the arbitrator’s fees, transcript and room hire costs. Whilst the Arbitration issues occupied a comparatively lesser part of the trial than the stone issues, they consumed significant private resources as is evident from the length of the Arbitration hearing and the Award.125 174 Whilst there is merit in the Builder’s submissions that significant and disproportionate costs were incurred in the Arbitration compared to the outcome, I am not persuaded this is determinative and warrants an adverse costs order in the Builder’s favour when considered in context of the totality of relevant factors. 121 $49,911.30 including GST. 122 Principal Reasons [2039]-[2040]. 123 Ibid [2034]-[2036]. 124 Written Submissions of Builder (FDN 287) [30]-[31]. 125 The more than 750-page Award was delivered on 28 June 2022. -- 37 of 74 -- [2026] SADC 40 34 175 The ‘event’ of the Arbitration was determined in the Owner’s favour. She was awarded compensation in a material amount, although it was below the UCR r 194.5(11) threshold and well below the jurisdictional limit of the Magistrates Court. The Owner succeeded on the majority of the individual items (some 55%) although her success in monetary terms was less than the significant and disproportionately greater costs incurred in connection with the Arbitration overall. There is merit in the Owner’s submission that an item-by-item basis presents a greater picture of her success than the overall financial outcome. 176 The Court is not in a position to assess the extent to which the time and costs incurred in the Arbitration were solely referable to items where the Owner was unsuccessful, other than in a broad and impressionistic way. In any event, it would not be practical or appropriate to further dissect the Arbitration issues and conduct a detailed review of relative success on the individual items in determining costs. 177 In these circumstances, it would be unjust to depart from the starting position that there be no order as to costs on the other defects and Arbitration issues. 178 There is also no justification for the Builder having an order for 90% of its costs of the Arbitration. The Builder’s “broad” estimate of time spent on unsuccessful items was unsupported by any evidence or proper analysis. The Builder’s submissions in this regard carry little weight, providing no foundation for its contention that the Owner was only 10% successful on the other defects and Arbitration issues. Having regard to the Award, the Builder’s estimate appears to be an overstatement. 179 Both the Builder and the Owner must share responsibility for the incurring of the significant costs of the Arbitrator being required to determine a “vast majority” of minor items126 or claims that individually fell within the jurisdiction of the Magistrates Court. As the Owner points out, the Builder consented to the transfer of her statutory claim to this Court from the Magistrates Court.127 180 In these circumstances, it is appropriate as between the Builder and the Owner that there be no order as to costs of the other defects and Arbitration issues, consistent with a direct application of the costs rules. The Subsidiary Issues 181 As a result of the Builder’s partially successful summary judgment application (heard in 2015), two issues were left for trial on the Builder’s primary action against the Owner. The first concerned the validity of PPC 11 (involving $58,875)128 and primarily determined when (not if) 50% of the cash retention ($52,925) held by the Owner as security for the Builder’s obligations under the Building Contract was payable.129 The second concerned whether PPC 12 was final 126 Written Submissions of Builder (FDN 287) [24]. 127 24 June 2015, T40.22. 128 PPC 11 also included an approved variation for the side fence of $5,950 including GST. 129 The Owner’s provisional obligation to pay PPC 12 was resolved by Tilmouth J in 2015. -- 38 of 74 -- [2026] SADC 40 35 and conclusive thereby precluding the Owner’s claims (totalling $77,484.36) on her cross actions that challenged the Builder’s entitlement to an adjustment to the contract price for the variations and PC Sum adjustments certified in PPC 12. 182 The payment claims issues were conceptually distinct and separate from the Owner’s defects claims (including stone). They were approached that way at trial, in the final orders and in my reasons.130 Although complex in some respects, these competing claims concerned significantly less amounts than the defects claims. 183 Whilst the merits of these claims involved common questions of contractual entitlement and other legal principles, the factual disputes about variations and PC Sum adjustments concerned numerous different parts of the works. The evidence about the specific circumstances of each claim was limited and primarily documentary. Relatively little time was spent at trial addressing these claims, leaving the Court to largely determine the Owner’s challenges to approved variations and PC Sum adjustments on the documentary evidence. 184 By comparison to the other issues, these issues involved the expenditure of significantly less private and public resources in absolute terms. In relative terms, greater public resources were spent by the Court in determining the Owner’s largely unsuccessful challenges to approved variations and PC Sum adjustments than resolving the questions about the validity and finality of PPC 11 and PPC 12. 185 The parties’ successes on these issues were mixed. 186 The Builder failed on the question of the validity of PPC 11. A declaration was made to this effect in the Owners favour.131 187 As a result, since the Owner had not paid the Builder’s tax invoice, she continued to hold all of the cash retention ($105,850) as security for performance of the Builder’s obligations under the Building Contract as she was entitled to do until a valid notice of practical completion and a final certificate were issued by the Architect under the Building Contract. 188 The Architect did not issue a final certificate until March 2025, after judgment was handed down.132 189 The question arising on the Builder’s claim as to whether PPC 12 was final and conclusive was also determined in the Owner’s favour. A declaration was made to this effect, permitting the Owner to challenge the Builder’s entitlement to an adjustment of the contract price for the approved variations and provisional and prime cost sums certified in PPC 12.133 130 Principal Reasons, Part D. 131 Ibid [884]-[929]. 132 FDN 304, Exhibit NJA-1. 133 Principal Reasons [22]-[23]; [947]-[949]. -- 39 of 74 -- [2026] SADC 40 36 190 The Owner was manifestly unsuccessful in her challenge to the Builder’s entitlement to a price adjustment for 22 (of 23) approved variations as certified in PPC 12.134 Ultimately the total certified amount was found to be overstated by $151.05, entitling the Owner to a credit adjustment in her favour in the final certificate. The Owner’s contention that the variation claims were not meaningfully and therefore negligently assessed by the Architect failed and her claims against the Architect for the approved variations were dismissed. 191 The Owner was partially successful in her challenge to the Builder’s claimed entitlement to adjustments to the contract price for PC Sums as certified by the Architect in PPC 12. Ultimately, it was found that PC Sum adjustments of $18,230.70 were overstated by $8,672.00 in PPC 12. As a result, the Owner was found to be entitled to a credit adjustment in her favour against the Builder in the final certificate.135 192 The Owner’s four ‘other claims’ totalling $28,130.42136 for credit adjustments to the contract price against the Builder137 (and the Architect)138 failed and were dismissed. 193 Given the mixed successes of the parties, the lesser significance of these claims in the proceeding and modest monetary outcomes as against the Builder in the Owner’s favour, it is appropriate that there be no order as to costs on all the payment issues and the Owner’s other minor claims. Contrary to the Owner’s alternative contention, it is also not appropriate that the Builder be ordered to pay the Owner’s costs of the primary action not determined by Tilmouth J. Do the Builder’s settlement offers justify a different conclusion? Conclusion 194 For the reasons previously discussed, it is appropriate that the Builder recover from the Owner its costs of stone issues on an indemnity costs basis and the Builder’s settlement offers do not justify a different conclusion. The Builder has not demonstrated that the outcome for it on judgment is no less favourable than if the Owner had accepted its formal offer or that the Owner’s non-acceptance of it was unreasonable in the circumstances of this case. 195 The Builder accepts that the invitations made for the Owner to abandon claims in the Arbitration by its solicitor’s email dated 12 March 2021 do not inform the Court’s discretion on costs in any relevant way.139 196 My reasons follow. 134 Ibid [951]-[1182]. 135 Ibid [1183]-[1310]. 136 At trial, her delay claim was reduced from $10,111.00 to $1,134.84: Principal Reasons [1333]-[1344]. 137 Ibid [1311]-[1344]. 138 Ibid [2065]. 139 25 March 2025, T15.18-.33. -- 40 of 74 -- [2026] SADC 40 37 Builder’s Formal Offer – October 2016 197 On 28 October 2016, the Builder made a formal offer of settlement140 pursuant to r 187 of the 2006 Rules.141 198 The offer was expressed to be a contract offer within the meaning of the 2006 Rules, was open for 21 days and only capable of acceptance in full. 199 The offer was made in the Builder’s capacity as both the applicant in the primary action and the respondent to the Owner’s cross action and statutory claim commenced in the Magistrates Court and transferred to this Court on 9 June 2015. It proposed terms to end the parties’ contractual relationship and resolve the entire proceeding and any connected claims as between them. 200 Its essential terms were that the Owner pay the Builder in full and final satisfaction of all and any progress payment certificates and tax invoices $55,000 and $10,000 for the costs order made on 11 August 2015 in the Builder’s favour. Upon payment, the Building Contract would be terminated, the Owner would be entitled to keep the remaining 50% of the cash retention she held under the Building Contract ($52,925), mutual releases would discharge the parties from all claims in connection with the Building Contract and the proceeding and the Builder’s primary action and the Owner’s cross action and the statutory claim against the Builder would be discontinued with no orders as to costs. 201 The Builder’s offer was not accepted by the Owner. Rule 188G 202 The Builder’s formal offer was not a complying offer within the meaning of r 188F(1) of the 2006 Rules because it did not contain the requisite term as to the costs of the primary or cross action or statutory claim.142 Therefore, r 188F does not apply but r 188G would apply if the judgment granted was on terms no less favourable to Builder than the terms of the offer, subject to the Court’s overriding discretion on costs. 203 Rule 188G provides: Costs in other cases (1) This rule applies in cases to which rule 188F does not apply. (2) When— (a) a party has made a formal offer; (b) the offer was not accepted; and 140 FDN 285, Exhibit NJA-1. 141 These rules were in force from 1 December 2015. 142 Rule 188F(1)(c) provided that a complying offer must contain a term that either the defendant on the relevant claim is to pay the costs of the plaintiff on the relevant claim on a party and party basis of that the parties will submit to any order the Court may make in the exercise of its discretion. -- 41 of 74 -- [2026] SADC 40 38 (c) judgment is granted in respect of the claim the subject of the offer on terms no less favourable to the offeror than the terms of the offer— the Court is to take those matters into account in determining what order for costs to make. (3) Without affecting the generality of the discretion of the Court, in exercising its discretion as to costs in accordance with subrule (2), if the Court considers that a party unreasonably rejected a formal offer, the Court may— (a) order that the offeree pay the costs of the offeror in respect of the claim the subject of the offer after 14 days after service of the formal offer on a party and party basis or some other basis; or (b) order that the offeree bear its own costs in respect of the claim the subject of the offer after 14 days after service of the formal offer; or (c) make such other order as to costs as it thinks appropriate. The Parties’ Contentions 204 The Owner contends her non-acceptance of the Builder’s formal offer does not justify any adverse costs order, let alone a higher basis of costs on numerous grounds, primarily because the Builder has not shown that the outcome on judgment was less favourable to the Builder than the terms of its formal offer. The Owner’s first contention is that the Court has no basis for assessing whether the Builder will ultimately achieve a better outcome on the issue of the final certificate or its costs offer. Her second contention is that the judgment was less favourable to the Builder than the terms of its offer for various reasons. Thirdly, and most critically, she contends it was not unreasonable for her to have not accepted the Builder’s formal offer. 205 The Builder disagrees, contending it will achieve an outcome in the litigation better than its formal offer in net value terms. It submits there is a net amount payable to it on the issue of the final certificate when unpaid final cash retention and interest are taken into account. The Builder contends that whilst the offer was formulated on the basis that PPC 11 was valid (although it was ultimately determined not to be), the net outcome of the litigation should be compared to the terms of its offer. 206 In support of its position, the Builder emphasises the following features of its formal offer. First, the Builder offered to resolve all disputes and claims under the Building Contract. Secondly, it was an offer to forego the Builder’s entitlement to the final cash retention sum ($52,925), in effect allowing this amount for defects. It was therefore more favourable than the judgment awarded to the Owner of $49,911.30 including GST for defects.143 Thirdly, it was an offer to accept $55,000 in November 2016 instead of $58,875144 that it submits will be due on the regularisation of the final certificate (issued in March 2025).145 Fourthly, it was an offer to forego interest on the retention sum payable upon the issue of the final 143 Builder’s Cost Submissions in Reply to the Owner’s Submissions (FDN 297) [25.1]. 144 Calculated as the sum of 50% of the cash retention ($52,925) plus the side fence variation ($5,950). 145 Builder’s Cost Submissions in Reply to the Owner’s Submissions (FDN 297) [25.2]. -- 42 of 74 -- [2026] SADC 40 39 certificate under clause C2.2 of the Building Contract, conservatively estimated by its solicitor as $13,672.29 in October 2016 and $34,930.50 in March 2025.146 207 The parties’ submissions give rise to a number of threshold issues about the terms of the offer and the judgment that point in different directions. It is necessary to address these issues before considering whether the terms of the judgment granted were no less favourable to the Builder than its formal offer and whether its non-acceptance by the Owner was in all the circumstances unreasonable. The Contractual Context 208 The first threshold issue concerns the contractual context. The Owner submits that having delivered its final judgment, the Court is functus officio and cannot reconsider its decision and take into account new matters such as the issue of the final certificate and notice of practical completion by the Architect in March 2025 following the handing down of the judgment or the Builder’s new and unpleaded claim for interest on cash retention. Further, she submits the Builder could never achieve a better outcome on judgment in the absence of a valid certificate of practical completion. 209 The Builder and the Architect disagree, contending the issue of the notice of practical completion and the final certificate are the natural product and consequence of the Court’s judgment. 210 It is not appropriate that the Court determines the merits of the Builder’s claim for the Owner’s breach of her obligations for cash retention under clause C2.2 of the Building Contract, despite the urgings of the Builder and the Architect that the Court do so for finality’s sake. It is a new unpleaded claim and procedural fairness requires the Owner be given an opportunity to admit or defend a new claim in the usual way. 211 This is not to say that the Owner’s failure to hold cash retention in an interest- bearing trust account for the Builder is not a relevant consideration in the Court’s exercise of its discretion on pre-judgment interest or costs. It clearly is. 212 Where the Court’s judgment includes both monetary and non-monetary relief (as do the terms of the offer) in comparing them it is necessary to make a broad assessment of the value of the relief and the terms offered. To undertake this assessment in this case it is necessary to take account of the consequences on the parties’ rights and obligations under the Building Contract. Again, contrary to the Owner’s contention, there is no impediment to the Court having regard to the contractual consequences of its judgment on the parties’ entitlements under the Building Contract in exercising its discretion on costs, particularly when these very matters were central to the issues determined by the Court. 146 Ibid [25.3] and [28]. -- 43 of 74 -- [2026] SADC 40 40 213 In this case it is also both relevant and necessary to have regard to the amount of the cash retention held by the Owner by reason of the invalidity of PPC 11,147 the contractual purpose of the cash retention,148 the Owner’s concession that she did not hold the cash retention in a separate interest-bearing account on trust for the Builder149 and that a certificate of practical completion and a final certificate were issued in March 2025 by the Architect.150 To have regard to these matters as may be appropriate is not to adjudicate claims that were not in issue in the proceeding and therefore not before the Court for determination. 214 Aside from a potential dispute about interest on the cash retention, on the evidence before the Court, the only outstanding contractual step was the issue of the final certificate and, as ultimately determined by the Court, the issue of a valid certificate of practical completion. Moreover, the utility of the declaration about the credit adjustments to be made in the Owner’s favour in the final certificate is purely financial. Declaratory Relief 215 The Owner relies on the declarations made in her favour as important indicia of her success in the proceeding. She characterises the declaratory relief granted by the Court as substantive relief over and above the monetary orders made. 216 I do not accept her submissions for the purposes of exercising the Court’s discretion on costs. 217 The Owner’s primary motivation in the litigation was financial. The proceeding started as a result of her failure to pay the Builder’s final tax invoices and refusal to engage with the Architect about her reasons for doing so, despite her holding a substantial cash retention as security for performance of the Builder’s obligations under the Building Contract. She pursued substantial and expanding claims in number and value for defects (including stone) and challenged approved variations and PC Sum adjustments and made other minor claims seeking monetary compensation. 218 The declaratory relief in this case was not sought by the Owner as substantive relief to vindicate important rights over and above any monetary objective, unlike a defamation case or where an applicant seeks vindication for serious allegations of fraud or dishonesty. As such, the declarations do not result in the Builder’s formal offer being less valuable and therefore less favourable than the declarations and the judgment sum.151 The declarations have definable contractual and monetary 147 Principal Reasons [884]. 148 Ibid [893]. 149 25 March 2025, T8.4-.17. 150 FDN 304, Exhibit NJA-1. 151 The declarations in this case had a very different utility to declaration granted by the Court in Ms Ramsey’s case as formal vindication of her wrongful dismissal and that she was not guilty of the misconduct alleged against her as the ground for summary dismissal: Ramsay v Annesley College (No 2) [2013] SASC 145 at [9], [52]-[53] (Blue J). -- 44 of 74 -- [2026] SADC 40 41 consequences that permit a comparison between the judgment and the terms of the offer. The Builder’s Failure on PPC 11 219 The Owner submits the offer of $55,000 in satisfaction of “all and any Progress Payment Certificates and Tax Invoices” refers only to PPC 11 and its associated tax invoice. Because the Builder failed on its claim to recover on PPC 11, she submits the judgment granted is less favourable to the Builder than its offer. 220 Contrary to the Owner’s submission, this term of the offer is not to be construed, either literally or contextually, as only referring to PPC 11. The Builder’s offer repeatedly refers to PPC 11 and PPC 12 and their associated tax invoices. There is no warrant from the text or its context to read this term so narrowly. 221 Yet, as the Builder properly acknowledges, at trial it failed on PPC 11. The Builder also failed as to the finality and conclusiveness of PPC 12 and as to the merits of the underlying disputes, albeit to the extent of the Owner’s entitlement to credit adjustments in her favour in the final certificate in the nominal sum of $9,705.58. 222 That said, it is not appropriate for the Court to adopt such a constrained approach in assessing the judgment and the terms of the Builder’s formal offer. The Court should broadly assess the net effect and value of both the judgment and the offer. Not Less Favourable 223 Bearing these matters in mind, properly analysed, the effect of the Builder’s offer in monetary terms was for the Owner to forego any compensation for future rights under the Building Contract for credit adjustments in the final certificate on payment of $55,000 to the Builder, leaving the Owner with the final 50% of the cash retention sum of $52,925 as compensation for any defects. 224 In this case, I do not accept that the inclusion of these terms introduced extraneous matters that rendered a comparison between the offer and judgment difficult or impossible. Termination of the Building Contract and the mutual releases were of value to the Owner in bringing administration of the Building Contract to an end and avoiding any associated costs for the Architect’s services. The releases had further value by discharging the Owner from any liability for breaches of the Building Contract, including her obligation to hold cash retention in an interest-bearing trust account for the benefit of the Builder. However, the value of the release to the Owner has not been quantified in any meaningful way on the evidence. -- 45 of 74 -- [2026] SADC 40 42 225 The Builder has no present entitlement to interest on the cash retention held by the Owner under clause C2.2 of the Building Contract.152 No claim was made in the proceeding for interest on the cash retention. Nor is there any accrued interest to take into account in the final certificate because the Owner did not maintain cash retention in an interest-bearing trust account.153 The terms of the offer do not expressly refer to interest on cash retention, however they operate to discharge the Owner from any breach of clause C2.2. 226 However, contrary to the Builder’s submissions, the effect of its offer to accept $55,000 instead of its net monetary entitlement on the issue of the final certificate is not more favourable to the Owner than the judgment.154 In calculating its net monetary entitlement on the issue of the final certificate, the Builder overlooks the credit adjustments to be taken into account in the Owner’s favour in issuing the final certificate ($9,705.36 including GST)155 and includes the side fence variation which the Court determined was incorrectly certified as payable twice ($5,950 including GST).156 227 Put more simply, from the Owner’s point of view, after payment of $55,000 to the Builder out of the cash retention of $105,850 she held, she would have had $50,850 to cover the claims (for defects and credit adjustments in the final certificate) that she would have foregone by accepting the offer. The value of the Owner’s entitlements for those claims as determined by the primary judgment was a greater amount of $59,616.66 including GST.157 228 On my analysis, the outcome for the Builder for the primary relief on judgment is less favourable than if its offer had been accepted by the Owner. 229 As for costs, the Builder’s offer provided that each party bear their own costs apart from the payment of $10,000 for the August 2015 costs offer. 230 The Builder made no attempt to quantify the August 2015 costs offer. It did not adduce any evidence of the actual costs it had incurred in the proceeding up to 11 August 2015 or the work undertaken to which to this costs order relates. Whilst in some circumstances the Court might be able to assess the reasonableness of a costs order, having regard to the nature of the matters to which it relates and the hearing time taken, there is too much uncertainty here. In the absence of any cogent evidence, it would be speculation to infer that the $10,000 offer was reasonable by comparison to the likely result on taxation, particularly where the 152 Contrary to the Builder’s (inconsistent) written submissions on the point: Written Submissions of Builder (FDN 287) [39]; Builder’s Cost Submissions in Reply to Owner’s Submissions (FDN 297) [25]- [28]. 153 25 March 2025, T4.16-.24. 154 There are errors in the Builder’s initial calculation that was done before the Architect issued the final certificate. The Builder accepts that the Architect’s final certificate prevails over its solicitor’s calculation, as does the maths in the Court’s judgment. 25 March 2025, T2.38-3.5; T19.34-.35. 155 $151.05 + $8,672.00 + GST. 156 Principal Reasons [1124]. 157 $49,911.30 + $166.16 + $9,539.20 all including GST. -- 46 of 74 -- [2026] SADC 40 43 award is for 85% of the Builder’s costs as taxed or agreed and the relevant scale is parsimonious. 231 The Builder’s offer provided the proceedings be discontinued with no order as to costs. Where the costs incurred are substantial, such a term may be a real concession of substantial value. In the absence of any evidence of the Builder’s costs at the time of the offer, it is not possible to attribute any value to this term that would meaningfully inform the Court’s discretion on costs. Unreasonableness 232 The Builder’s formal offer represented a pessimistic although ultimately realistic assessment of the Owner’s prospects of success by reference to her claims and a limited compromise of the Builder’s position. Since the outcome of the judgment was more favourable to the Owner than the terms of the Builder’s formal offer, it follows that the Owner’s non-acceptance was not unreasonable in all the circumstances. 233 Several other considerations favour this conclusion. 234 First, the offer was made at a relatively early stage of the proceeding, without any explanation as to the rationale for the Builder’s offer in a factually complex building case. 235 Secondly, as of 28 October 2016, the Builder had not fully discharged its discovery obligations. The Builder made substantial further discovery in October 2019 and November 2021. At the time of the Builder’s offer, the Architect had not made any discovery. There is merit in the Owner’s submission that she was not in a position to properly assess the Builder’s offer against the relevant discoverable documents, particularly as regards her other defects claims upon which she was partially successful. Should an order be made apportioning costs? 236 Since there should only be one costs order made in the Builder’s favour against the Owner on the stone issues and no other order as to costs, it is not necessary to consider this question. Should the additional order be made? 237 Since I have declined to award the Builder its costs of action, the Builder seeks an additional order that it be awarded the costs incurred and caused by the unnecessary joinder of the Architect because the Owner’s case against the Architect on stone defects was ‘hopeless’ and unmeritorious overall by comparison to the significant disproportion between the costs incurred by the Architect and the realistic quantum of the claims made against it. 238 Undoubtedly, the joinder of the Architect added to the complexity, duration and cost of the proceeding. -- 47 of 74 -- [2026] SADC 40 44 239 However, having determined that there should be a separate costs order in the Builder’s favour on the stone issues on an indemnity costs basis but no other order as to costs as between the Builder and the Owner, it is not appropriate to make this additional order. There was substantial overlap and commonality between the claims brought by the Owner against the Builder and against the Architect on the stone defects as to the varied contractual specification and non- compliance, the other defects and the over-certification claims. The Architect’s participation in the ventilation of these issues relieved the Builder of some of the work and costs of defending all issues on its own. It would be unfair to award the Builder its costs of the other claims in circumstances where it was otherwise appropriate that there be no order as to costs. Set-off of Judgment Sum and Costs 240 The Builder seeks an order that its liability to the Owner for the judgment sum be set-off against the costs awarded in the Builder’s favour against the Owner. The Owner submits any such order would be inappropriate and would be a matter best addressed after the parties have had an opportunity to consider the Court’s determination on costs. 241 The Court has express power to make a set-off order of the nature sought under UCR r 194.3(4) and its inherent jurisdiction.158 Having regard to the relatively lesser quantum of the Builder’s liability to the Owner for the judgment sum compared to the Owner’s liability on costs in context of a dispute about the net sum due under a building contract, it is appropriate that an order for set-off be made. The Owner has not advanced any good reason as to why this would not be a fair or just outcome. My conclusion is reinforced by the substantial and greater cash retention held by the Owner as security for performance of the Builder’s obligations under the Building Contract. Interest on Costs Paid 242 The Builder seeks an order that interest is payable on the costs it has paid at the Court rate relying on s 40(2) of the District Court Act and UCR r 194.3(2). The Builder submits it has incurred and paid costs and disbursements in the order of $700,000 since March 2015 in circumstances where the proceeding has been conducted over an extended period and having regard to the Owner’s evolving stone defects claim. The Owner opposes any such order. 243 The Court’s power to make such an order is clear. In this case it is a relevant consideration that the Builder has paid significant costs and disbursements over more than ten years since March 2015 and is entitled to an award of indemnity costs on the stone issues. In order to be a complete indemnity, it would be generally appropriate for interest to be payable on costs paid except to the extent that costs are shown by the liable party to be unreasonably incurred. 158 Sloan v Service Stream Ltd (No 3) [2020] SADC 132 at [16]; Gertig v Davies [2003] SASC 86 at [24]. -- 48 of 74 -- [2026] SADC 40 45 244 However, the Builder has not adduced any evidence showing what costs and disbursements were paid or when or for what work. The Owner has not had any opportunity to test whether any costs and disbursements paid by the Builder were unreasonably incurred. 245 In these circumstances, it would be premature and not appropriate to make any order for interest to be payable on the costs the Builder has paid. Such an application should be made to the taxing officer once the relevant costs have been identified and the Owner has had a proper opportunity to test whether the costs claimed were not unreasonably incurred. Interim Taxation 246 The Builder seeks an order that the Builder’s disbursements in the proceeding and the Arbitration be permitted to go to an interim taxation unless agreed for the same reasons advanced for an order that interest on costs be paid. The Owner opposes any such order. 247 It is not appropriate for there to be an interim taxation on disbursements by parity of reasoning as to why it is premature and not appropriate to make any order for interest to be payable on the costs and disbursements the Builder has paid. COSTS - AS BETWEEN THE OWNER AND THE ARCHITECT Conclusion 248 The Architect was manifestly successful overall. As a starting point, it is appropriate that the Architect has its costs of action against the Owner on the standard costs basis. 249 Taking into account the commonly considered matters and the special and exceptional circumstances of this case, the Owner’s non-acceptance of the formal offer filed by the Architect on 5 June 2019 was unreasonable. The magnitude and disproportion of the costs incurred by the Architect relative to the de minimis outcome achieved against it are important considerations having regard to the hopelessness of the Owner’s stone defects case on breach, the weak merits of her other claims against the Architect and the Owner’s persistent refusal to settle with only the Architect. In these circumstances it is appropriate the Architect has its costs of action against the Owner on an indemnity costs basis from 20 June 2019. 250 My reasons follow. Who was the successful party overall? 251 The Owner contends she was the successful party overall, relying on her successful damages claim against the Architect (albeit to the extent of $164.38) and the declaratory orders made in her favour (about PPC 11, the certificates of practical completion and credit adjustments to be made in the Owner’s favour in the final certificate) that bind both the Builder and the Architect in her favour and -- 49 of 74 -- [2026] SADC 40 46 impose obligations on the Architect on issue of the final certificate.159 Her overriding contention is that it was necessary that the Architect be a party to the proceeding. 252 I do not accept the Owner’s submissions. She was not truly successful against the Architect. The de minimis damages award was so small that the Owner cannot properly be considered as the winner in exercising the Court’s discretion on costs. The Owner’s overall failure against the Architect is all the starker having regard to the magnitude of the claims she pressed against it to judgment (both in terms of quantum and number) and the enormous and grossly disproportionate private and public resources involved in the conduct of the proceeding for more than ten years. The Architect’s submission that its costs of action have been “truly epic and disproportionate” is no exaggeration.160 253 Nor was the declaratory relief granted in the Owner’s favour substantive relief over and above the financial outcome of the proceeding. Its utility was purely financial and readily taken into account in monetising the outcome on judgment. 254 The issues between the parties in this case were, like most building cases, invariably financial with the objective being the determination of a final balance owing one way or another. This was the nature and effect of the Owner’s (successful) challenges to the validity of PPC 11 and the certificates of practical completion. Her success on PPC 11 effectively delayed release of 50% of the cash retention ($52,925) held in trust for the Builder and as security for the Builder’s obligations under the Building Contract until the issue of a valid certificate of practical completion. The nature and effect of the declarations about the minor credit adjustments to be made in the final certificate in the Owner’s favour ($151.05 for approved variations and $8,672.00 for PC Sum adjustments) were also financial issues. 255 Ultimately, the Owner did not suffer any loss from the Architect’s certification of PPC 11 or the determined over-certifications in PPC 12 or the issue of invalid certificates of practical completion, and her claims against the Architect for the certifications of PPC 11 and PPC 12 were dismissed.161 The Owner’s other claims for credit adjustments in the final certificate completely failed and were dismissed.162 256 I also do not accept the Owner’s submission that the declaratory relief she obtained justifies the joinder of the Architect as a necessary party to the proceeding. The Architect was joined by a separate cross action, pressing independent causes of action in contract and tort on the basis of the Architect’s retainer by the Owner. The Architect was retained under a separate contract from 159 Record of Outcome 29 November 2024 (FDN 283) Orders 6,7 and 8. 160 Third Party’s Outline of Written Submissions on Costs (FDN 289) [8]. 161 Principal Reasons [2041]. 162 Ibid [2065]. -- 50 of 74 -- [2026] SADC 40 47 the Building Contract. Whilst the Architect had an important role in administering the Building Contract, it was not a party to it.163 257 The Owner was not compelled to join the Architect to the proceeding. She made forensic decisions to join the Architect and to persist with her claims against the Architect (including by not accepting any of the Architect’s offers) in parallel to the defects and other claims made against the Builder. 258 The declarations bind the Architect because it was a party to the proceeding, not because it was necessary for the Architect to be bound as a party. If the Architect had not been joined, the same declarations would have bound the Builder and the Owner as parties to the Building Contract which governed their mutual rights and obligations. Having regard to the Architect’s dual role as the Owner’s agent and as independent certifier under the Building Contract, the Architect was obliged by its retainer with the Owner to comply with the Building Contract and act fairly and impartially having regard to the interests of both the Owner and Builder. Acting lawfully in accordance with its duties to the Owner and the Builder as independent certifier, the Architect would have been required to act consistently with the Court’s final orders and declarations had it not been joined to the proceeding. 259 In any event, the Builder had contractual rights under the Building Contract to require the Architect to issue a certificate of practical completion164 or the final certificate165 if the Architect failed to issue them and both the Builder and the Owner had rights to dispute any Architect’s certificate or failure to act.166 260 I also do not accept the Owner’s submissions that the Builder’s defences made it necessary for her to join the Architect. This was also a forensic choice made by the Owner for which she must take responsibility on costs having regard to the outcome of her claims against the Architect on judgment. 261 In these circumstances, there is no good reason why costs as between the Owner and the Architect should not follow the event. It is appropriate that the Architect as the manifestly successful party is entitled to an order for its costs of action against the Owner. Is the Architect entitled to indemnity costs? Conclusion 262 For the reasons that follow it is appropriate that the Architect has an order that the Owner pay its costs of action on an indemnity basis from 20 June 2019. 163 Ibid [287]-[291]. 164 Building Contract cl M7. 165 Building Contract cl N8. 166 Building Contract cl A8 and P4. -- 51 of 74 -- [2026] SADC 40 48 The Parties’ Contentions The Architect’s Contentions 263 In support of its claim for indemnity costs, the Architect submits the effect of the Court’s final orders is that all claims brought against it by the Owner failed save for a net de minimis amount following set-off of its unpaid fees. 264 The Architect submits it was unnecessarily and unreasonably forced to incur “truly epic and disproportionate” costs by reason of the Owner’s decision to join it in proceedings that did not merit the costs of a minor civil claim in the Magistrates Court, let alone its joinder to this proceeding in the District Court.167 Further, it was forced to continue to incur costs to final judgment despite making multiple significant and genuine offers that were ultimately not bettered by the Court’s judgment and rejected by the Owner, yet the Owner maintained her demands for hundreds of thousands of dollars and made no valid offers capable of acceptance only by the Architect. 265 The Architect submits it put the Owner on notice of the hopeless merits of her case in its settlement offers made on a number of occasions during the interlocutory stages of the proceeding. The Owner’s Overriding Contention 266 Aside from her claim that she was the successful party overall, the Owner’s overriding contention in opposition to the Architect’s claim for indemnity costs is that the only reasonable course was a resolution of all claims between all parties or a trial and a judgment that bound all parties. The Owner submits she approached this litigation in a manner that was open to a compromise that would resolve all issues on reasonable terms and demonstrated her willingness to compromise and resolve all issues, relying on the offers made by her solicitors’ letters dated 9 November 2017168 and 23 March 2021 which were not accepted.169 Ultimately, she submits this a case in which all parties bear some of the responsibility for the failure for it to resolve and in which no party ought bear an indemnity costs burden. 267 In support of her overriding contention, the Owner submits the Architect was a necessary party to the proceeding and it was important to bind the Architect to the outcome, particularly having regard to the declaratory relief sought and granted. Since all of the Architect’s offers were made on the basis of the resolution of the claims against it only and not the resolution of all issues between all parties, it was also reasonable for the Owner not to accept any of these offers. 268 For the reasons discussed above, I do not accept the Owner’s overriding contention.170 In adversarial civil litigation, the Owner and her legal advisers were 167 Third Party’s Outline of Written Submissions on Costs (FDN 289) [8]. 168 FDN 284, Exhibit MM-1; reiterated in the Owner’s Response to Formal Offer dated 19 June 2019, comprising MM-4. 169 FDN 284, Exhibit MM-6. 170 See [258] above. -- 52 of 74 -- [2026] SADC 40 49 responsible for the costs consequences of their forensic decisions about the conduct of her case, including the joinder and the ultimately unsuccessful pursuit of her claims against the Architect. Just as the Architect was joined to the Builder’s primary action by the Owner’s separate cross action and her claims against the Architect were determined separately, there was no logical or good reason preventing the Owner from settling her claims against the Architect separately from the Builder. That she did not was the result of forensic decisions the Owner made on advice for which she must ultimately bear responsibility on costs in circumstances where she was manifestly unsuccessful overall and her conduct in the litigation was unreasonable. The Owner’s Other Contentions 269 The Owner contends this case is not one in which there is any special or unusual feature justifying a departure from the standard costs basis, relying on the principles derived from Colgate-Palmolive Company v Cussons Pty Limited.171 She advances many reasons as to why each of the Architect’s unaccepted settlement offers do not justify an award of indemnity costs. 270 She contends that none of the Architect’s offers were more favourable than the outcome on judgment because none addressed the value of the declaratory relief granted in her favour. For the reasons already discussed above, I do not accept that the declaratory relief ultimately granted makes the judgment incomparable or, as against the Architect, a more favourable outcome to the Owner.172 The monetary value of the declaratory relief is readily assessed and monetised, and its value does not make the outcome on judgment more favourable to the Owner. As the Architect correctly submits, all of its offers in monetary terms were more favourable to the Owner than the outcome on judgment and increasingly so as time passed. 271 As for her stone defects claim, the Owner also contends it was reasonable for her to maintain this claim to trial for the same reasons advanced against the Builder. 272 The Owner also contends that it was not unreasonable for her to not accept or reject the various offers made by the Architect having regard to the stage of the proceeding at which they were made. This contention is best addressed in the context of the relevant offer, bearing in mind the premise of the general costs principles and rules is that the parties will have a sufficient understanding of their own and each other’s case to evaluate an offer at any stage of the proceeding. Ordinarily it will not be sufficient for the offeree to prefer to consider an offer at a later stage when they know more.173 In the circumstances of this case, this is a particularly unmeritorious contention having regard to the hopeless merits of the 171 (1993) 46 FCR 225 at 232-233 (Sheppard J). 172 See [215]-[218] above. 173 O’Brien at [47]. -- 53 of 74 -- [2026] SADC 40 50 Owner’s stone defects case on breach from the outset and the weak merits of her other claims against the Architect. Hopeless Case 273 For the same reasons discussed at length above in context of the competing positions of the Builder and the Owner on costs, the Owner’s stone defects claim against the Architect was hopeless and had no prospects of success. The Owner lacked an evidentiary foundation for proving breach of the varied contractual specification from the outset. 274 None of the Owner’s submissions about the Architect’s conduct in administering the Building Contract (as regards the varied contractual specification for stone and her complaints about its failure to maintain samples or record on-site directions to the Builder or its participation in the June 2013 meeting) justify a different conclusion. These matters all concern proof of the varied contractual specification for stone. None address her fundamental inability to prove breach, whatever the proven contractual specification for stone. None were relied on to allege any substantive loss and damage or any other substantive relief. 275 Substantial weight should be given to the hopelessness of the Owner’s stone defects case and the otherwise weak merits of her other claims against the Architect in determining whether to exercise the Court’s discretion on costs in favour of the Architect. The Architect’s First Offer 276 The first settlement offer relied on by the Architect as justifying an order for indemnity costs against the Owner was made by its solicitors’ letter dated 14 May 2019 at the time it served Mr Penglase’s first expert report.174 277 It was an informal settlement offer open for 21 days. It expressly stated that it was intended to be relied on as a Calderbank offer if not accepted and a Court determined an award no less favourable than the terms of the offer made. 278 By its terms, the Architect offered to pay the Owner $55,000 if the Owner agreed to discontinue her claim against it with no order as to costs. The Architect’s offer was a genuine compromise of its pleaded case, albeit a limited one compared to the quantum of the claims made against the Architect by the Owner. 279 The offer was subject to the execution of:175 a release agreement to reflect the terms of this offer, which would include, inter alia, “non- admission of liability”, “confidentiality” and “non-disparagement” clauses. 174 FDN 284, Exhibit MM-2. 175 Ibid, p 6. -- 54 of 74 -- [2026] SADC 40 51 280 The letter gave a detailed explanation for the Architect’s poor assessment of the merits of the Owner’s claims and why it considered her claims against it were “doomed to fail”.176 It clearly put the Owner on notice that the Architect would incur “further and significant costs which are greatly disproportionate to the amounts in dispute” having regard to the current procedural state of the matter and the nature of the dispute.177 Notably, at the time, the Owner was facing an application from the Builder to strike out her current pleading of stone defects that was pleaded in parallel against the Architect as the basis for the Architect’s breaches of contract and common law duties as regards stone. 281 The Owner contends the terms of the offer are not more favourable than the outcome on judgment because the offer required a release, declaratory relief was granted on judgment that was not addressed in the offer and further steps were required by the Architect under the Building Contract. 282 I reiterate, I reject the Owner’s contentions about the declaratory relief or further contractual steps making any favourability assessment impossible or having substantial value. In monetary terms the offer was clearly more favourable than the net outcome on judgment as against the Architect taking into account the monetised value of the declaratory relief. There were no further steps required by the Architect other than those the subject of the declarations sought and granted. 283 However, the terms of the ‘release agreement’ were not articulated and could not be known with any certainty. In this form the Architect’s offer was not capable of acceptance. For this reason, I do not regard the Architect’s informal offer as “the first successful Calderbank offer made by the Architect”.178 The Owner’s non- acceptance of this Calderbank offer was not unreasonable in these circumstances despite the other factors weighing in the Architect’s favour on indemnity costs. The Architect’s Second Offer 284 The Architect’s 14 May 2019 informal offer lapsed without any response from the Owner.179 285 On 5 June 2019, the Architect filed a formal offer pursuant to r 187 of the 2006 Rules.180 On 19 June 2019, the Owner filed a formal response not accepting the offer under r 188A of the 2006 Rules.181 286 The Architect’s formal offer was not a complying offer within the meaning of r 188F(1) of the 2006 Rules because it did not contain the requisite term as to costs.182 Rule 188G of the 2006 Rules applies and, as the Owner correctly contends 176 Ibid. 177 Ibid. 178 Owner’s Response to Architect’s Table of Offers (FDN 314). 179 FDN 310 [4]. 180 FDN 310 [6]-[7], Exhibit MM-23. Due to a clerical error, a complete copy of the formal offer was not emailed to the Owner’s solicitors until the following day. 181 FDN 284, Exhibit MM-4. 182 2006 Rules r 188F(1)(c). -- 55 of 74 -- [2026] SADC 40 52 and the Architect ultimately conceded, this offer is to be assessed on Calderbank principles. 287 The terms of the Architect’s formal offer were clearly and simply expressed. It was a contract offer, proposing a full and final settlement of the proceeding as between the Owner and the Architect by the payment of $55,000 to the Owner, on terms that there would be no admission of liability by the Architect, the terms of settlement would be confidential and the Owner’s cross action against the Architect would be dismissed with no order as to costs. The offer set out in an annexure detailed reasons as to why it would be unreasonable for the Owner not to accept the Architect’s offer. They were the same detailed reasons as set out in the Architect’s informal offer. 288 Unlike the informal offer, there was no legal impediment to acceptance of the formal offer. Importantly, it did not contain any release of the Architect’s obligations under its retainer with the Owner or any term precluding the Architect from finalising its certification function under the Building Contract, contrary to the Owner’s submissions about the importance of the further steps required to be taken by the Architect not being addressed by the Architect’s offers. 289 The Owner submits that the terms of the formal offer were less favourable than the outcome on judgment and it was not unreasonable for her not to have accepted it, relying on the matters raised in her formal response and the same submissions she made about the Architect’s informal offer (since both offers were made on substantially the same terms). 290 I do not accept the Owner’s submissions. 291 For the following reasons, it is appropriate to exercise the Court’s discretion on costs by ordering that the Architect recover its costs of action against the Owner on an indemnity costs basis from 20 June 2019 by reason of her non-acceptance of the Architect’s filed offer, taking into account the commonly considered matters and the special and exceptional circumstances of this case. 292 By comparison to the outcome on judgment, the terms of the Architect’s formal offer were clearly more favourable to the Owner. For the reasons already discussed, the declaratory relief ultimately granted does not make the judgment incomparable or more favourable to the Owner. The monetary value of the declaratory relief is readily assessed and the outcome on judgment taking that value into account is still plainly no less favourable to the Architect than the terms of its offer. Clearly, in monetary terms, the Owner would have been better off accepting the Architect’s formal offer compared to the outcome on judgment. 293 The offer was genuine and involved a reasonable compromise. The all- inclusive settlement sum was substantially more than the Architect’s pleaded position and the de minimis damages award on judgment. There was substantial value to the Owner in the Architect bearing its own costs on dismissal of the third -- 56 of 74 -- [2026] SADC 40 53 party claim given the stage of the proceeding. The Owner does not contend otherwise. 294 The offer was open for a reasonable time. It was made on substantially the same terms as the Architect’s informal offer made three weeks earlier and open for a further 14 days. There was sufficient time to evaluate the Architect’s formal offer. In any event, the Owner by her solicitors filed a formal response not accepting it on 19 June 2019. 295 Nevertheless, the Owner submits she did not have sufficient time to consider and seek advice about Mr Penglase’s report or that if she had, it was reasonable for her to consider this report did not advance the Architect’s case or address various matters, relying on a specific paragraph in Annexure A. 296 The Owner cannot have it both ways. Mr Penglase’s report was short and easily digested. More critically, properly read, the Architect’s offer did not make any concession with regard to non-compliance of the stonework. The paragraph in question in Annexure A (1.3(c)(ii)) referred to the difficulty arising from the Owner’s pleaded allegation about assurances made by the Builder and the Stone Supplier (and not the Architect) to her and the Architect. From its defence, it was plainly not the Architect’s case that it accepted that the stonework was non- compliant. 297 It is not a compelling consideration that the Architect had not made full discovery at this later stage of the proceeding. Four years after joining the Architect to the Builder’s primary action, the Owner should have evaluated the Architect’s filed offer as best she could by reference to the available evidence and what she knew about the other parties’ cases. Again, the Owner’s formal response demonstrates that she was able to evaluate the Architect’s filed offer. In it she debated the issues and concluded that the offer did not reflect her assessment of the risk and value of her claims against the Architect and the likely outcome at trial. Her response concluded by a statement that she would be willing to resolve the proceeding on the terms of her November 2017 offer. The sticking points were the settlement sum and the Owner’s requirement for a joint settlement with the Builder and the Architect. 298 The Architect’s filed offer included extraneous terms as to no admission as to liability and confidentiality. I do not consider the inclusion of these terms precludes an order for indemnity costs by reason of the Owner’s non-acceptance. They are a neutral factor in this case. The absence of any objection to these terms in the Owner’s response indicates these terms were not a sticking point in reaching a commercial settlement. The Owner does not contend otherwise. 299 I reject the Owner’s submission that it was not unreasonable for her not to accept the Architect’s filed offer because “the pleadings on the stone defect still -- 57 of 74 -- [2026] SADC 40 54 had some way before they were to reach their final outline”.183 Plainly, none of the parties were in a position to assess offers in light of the final pleadings that had not been drafted. More critically, in June 2019, the Owner was on notice that her stone defects claim was inadequately formulated and pleaded, albeit because of the Builder’s pending strike out application. Properly advised, the Owner should have assessed her stone defects case as hopeless because she had no objective proof of non-compliance with the selected and approved stone colour range or any expert evidence and was at serious risk of her stone defects claim being struck out. This was the case despite four years of litigation and five rounds of pleading amendments against the Architect (and five against the Builder). 300 As already discussed, the hopelessness of the Owner’s stone defects case is also an important consideration weighing in the Architect’s favour in assessing the reasonableness of the Owner’s non-acceptance of the Architect’s formal offer. 301 Properly advised, the Owner should also have appreciated the risk that the Builder (and not the Architect) would be primarily liable for any over- certifications and the cost of remediating any defects. The risk of the Builder’s insolvency was mitigated by the cash retention held by the Owner. Whilst these risks do not of course constitute ‘hopelessness’ in the requisite sense and of themselves justify an order for indemnity costs, they are relevant considerations weighing in favour of a special costs order along with other factors. 302 Furthermore, for the reasons already stated, I reject the Owner’s submission that it was not unreasonable for the Owner to take the view that the only reasonable course was a resolution of all claims as between the Builder, Architect and herself. 303 Taking into account the commonly considered matters and the special and exceptional circumstances of this case, by reason of her non-acceptance of the Architect’s formal offer it is appropriate that the Owner pay the Architect’s costs of action on an indemnity costs basis from 20 June 2019. The Architect’s Subsequent Offers 304 Four further rounds of subsequent offers were made by the Architect at mature stages of the proceeding. The March184 and July 2021185 offers were made approximately six years after the Architect’s joinder to the proceeding and concerned the Arbitration defects. The September 2021 offer186 was made at the start of the Arbitration hearing. The final round of offers made in June187 and July 2022188 were made shortly before the trial on the stone defects liability issues was due to start. 183 Written Submissions of the Respondent (Owner) Costs (FDN 292) [93.5]. 184 FDN 284, Exhibit MM-5. 185 Ibid, Exhibit MM-10. 186 Ibid, Exhibit MM-11. 187 Ibid, Exhibit MM-13 and MM-14. 188 Ibid, Exhibit MM-15 and MM-16. -- 58 of 74 -- [2026] SADC 40 55 305 The Owner did not accept any of these offers, responding to the 12 March 2021 letter on 23 March 2021189 and the filed offers on 13 October 2021,190 30 June 2022191 and 15192 and 18 July 2022.193 306 Having determined that the Owner’s non-acceptance of the Architect’s second offer entitles the Architect to an award of indemnity costs from 20 June 2019, it is not strictly necessary to consider the Architect’s subsequent offers and the Owner’s non-acceptance or rejection of these offers. It is nevertheless appropriate to address them in some detail because of the attention given to them in the parties’ submissions. 307 Before considering the specific circumstances of the Architect’s subsequent offers, it is appropriate to make the following broad observations. 308 None of the Architect’s filed offers were complying offers under the 2006 Rules or relevant offers withing the meaning of UCR r 132.10. Accordingly, they are to be approached as Calderbank offers and where r 188G of the 2006 Rules or UCR r 132.11 applies, the fact that a formal offer was made and not accepted is a matter to be taken into account by the Court on the question of costs consistent with UCR r 194.6(2)(d) and (e). 309 The Owner’s non-acceptances or rejections of the Architect’s subsequent offers fortify my conclusion that the special and exceptional circumstances of this case warrant an order for indemnity costs in the Architect’s favour from 20 June 2019. This series of offers and non-acceptances or rejections demonstrates the Architect’s numerous unsuccessful attempts to extract itself from the proceeding in circumstances where the Owner was only prepared to resolve the proceeding on the basis of the settlement of all issues as between the Builder, the Architect and herself for a significantly greater settlement sum that she considered better reflected the strong merits of her claims. 310 This was an unreasonable position for the Owner to take in the circumstances of this case for a number of reasons. 311 First, significant and grossly disproportionate costs continued to be incurred by the Architect because of its ongoing involvement in the proceeding. The Owner appreciated this. Indeed, her November 2017 offer begins by setting out an estimate of the “very high” costs to be incurred by the parties,194 which she reiterates on occasion in subsequent responses. 312 Secondly, for the reasons already canvassed at length, it was not necessary that the Architect remain a party to the proceeding and I reject the Owner’s 189 Ibid, Exhibit MM-6. 190 Ibid, Exhibit MM-12. 191 FDN 186. 192 FDN 284, Exhibit MM-17. 193 FDN 215. 194 FDN 284, Exhibit MM-1, p 1. -- 59 of 74 -- [2026] SADC 40 56 submission that the only reasonable course was a resolution of all claims between the Builder, the Architect and herself. Independent causes of action were advanced against the Builder and the Architect. There was no legal impediment to a separate commercial settlement with the Architect on some or all of her claims. In determining costs, the Owner’s non-acceptances or rejections of the Architect’s offers for this reason were forensic decisions for which she is responsible. 313 The Owner’s approach to settlement was particularly unreasonable having regard to the merits of her claims against the Architect. 314 Although not hopeless, the merits of the Owner’s defects claims referred to Arbitration were weak and lacked a proper evidentiary foundation. The scope of the remedial works costed by Mr Allen was formulated by the Owner and her solicitors and unsupported by any independent expert evidence.195 Mr Allen’s evidence was found to be partisan and unreliable in material respects and was self- evidently so. 315 Stone defects aside, if the over-certification and other defects claims were determined in the Owner’s favour, they would likely have resulted in credit adjustments in the final certificate or an award of liability primarily against the Builder for which she held $105,850 in cash retention as security. In this circumstance, there would be a material risk that the Architect would have limited or no liability to the Owner because she would suffer no loss despite any over- certification or breach of duty. This very risk materialised on the delivery of the Arbitral Award on 28 June 2022 and is relevant to the non-acceptance of the Architect’s final offers made on 1 July 2022 (discussed below). 316 It was all the more unreasonable for the Owner to persist with her ‘all party approach’ to settlement having regard to the hopeless merits of her stone defects case on breach. The Architect’s Third Offer – 12 March 2021 317 The Architect relies on the Owner’s rejection of its third offer made by a Calderbank letter sent by its solicitors to the Owner’s solicitors on 12 March 2021.196 318 The Architect’s informal offer was sent nearly six years after the Architect had been joined to the proceeding, shortly after the filing of the Builder’s and the Architect’s responses to the Scott Schedule on 4 March 2021 and the Arbitration hearing was forthcoming but not yet scheduled. 319 By its terms, the Architect offered to bring its participation in the Arbitration to an end by paying the Owner $40,000 plus a $5,000 contribution to costs for the alleged arbitration defects, provided the Owner discontinued that part of her claim 195 Primary Reasons [1773]. 196 FDN 284, Exhibit MM-5. -- 60 of 74 -- [2026] SADC 40 57 “in relation to the arbitration issues listed in the Scott Schedule” against the Architect.197 320 The offer was open for 14 days and expressed to be a Calderbank offer that would be relied on if it was not accepted and the Court determined an award no less favourable than its terms. 321 This informal offer pointed out that the Architect’s position (as per its response to the Scott Schedule) was that the majority of the alleged defects did not exist because they had been rectified or were maintenance issues since nearly seven years had passed since the Owner took possession of the house. Further, the Architect’s position was that the Builder remained liable to rectify any defects, and the Builder has always agreed that it was obliged to attend and rectify some defects (pending stone remedial works) and the principles of proportionate liability would apply so that even if the Architect was liable for a defect, its liability would only be for its share of responsibility for that loss. And the position remained that significant and disproportionate costs would continue to be incurred by the parties in the Arbitration. 322 The terms of this informal offer were plainly more favourable to the Owner than the outcome on judgment for the defects referred to Arbitration. Before set- off the Owner’s liability after apportionment was $5,142.28 for three items for which the total remedial costs were $7,385.25.198 Having regard to the quantum of the offer and the outcome on judgment, it is not material that the Architect had not yet pleaded set-off of its unpaid costs, which the Owner well knew she had not paid. 323 The Owner’s solicitors rejected this informal offer by letter dated 23 March 2021 addressed to both the Builder and the Architect.199 As against the Architect, its informal offer was stated to be rejected for two reasons. First, there were “matters of procedure” because the issue of apportionment for defects was reserved to the trial judge and it was “not appropriate” for the Owner to compromise her claim separately with the Architect.200 Secondly, the settlement sum was inadequate on the Owner’s assessment. The Owner then put a counter- offer to resolve the Arbitration that was stated to be only capable of acceptance by the Builder and the Architect by the payment of a settlement sum of $373,000, with the costs of the Arbitration and defects alleged in the Scott Schedule to be reserved to the trial judge. 324 The Owner further submits that the Architect’s informal offer was ambiguous and lacked clarity as to its effect when paragraphs [2.4], [2.5] and the footnote were read together. I do not accept this submission. Read in context, the Architect’s offer was proposing compromise of the referred issues for defects that 197 Ibid, p 16. 198 Primary Reasons [2033]. 199 FDN 284, Exhibit MM-6. 200 Ibid, p 18. -- 61 of 74 -- [2026] SADC 40 58 were plainly identified in the Scott Schedule and not the defects alleged in the primary pleading such as the stone defects. It is clear from the Owner’s response of March 2021 that she and her advisers understood this at the time. This was not a complaint made in March 2021 or a genuine basis for rejecting the offer. 325 The Owner further submits that because of the common interests of the Architect and the Builder, the Architect, acting reasonably, should have elected not to participate in the Arbitration and accepted the outcome. This submission is at odds with and undermines the Owner’s contention in her March 2021 response that it was procedurally inappropriate to settle with the Architect separately and it was a necessary participant in the litigation. This submission is put somewhat differently in the Table of Offers201 where she contends the Architect should have eliminated costs in the Arbitration by conducting its defence jointly on issues where the Builder and the Architect’s position was the same. Having regard to the Arbitration materials, including the Award, I do not accept the suggestion that the Architect’s participation in the Arbitration hearing was unreasonable or that this is a material consideration in assessing the reasonableness of the Architect’s third offer or the unreasonableness of the Owner’s rejection of it. 326 Having regard to the contents of the Architect’s second list of documents202 filed in July 2021 (after this informal offer), it is not a material consideration that the Architect had not completed discovery when this offer was rejected. Furthermore, I consider the correspondence passing between the parties’ solicitors about the possibility of referring the smaller defect claims to an expert determination as a neutral factor. 327 More critically, the Owner’s rejection of the Architect’s third offer was unreasonable having regard to a number of overlapping considerations. First, the Owner was well aware of the significant and disproportionate costs involved in determining hundreds of items by Arbitration in circumstances where the claimed value of a large number of individual items was not significant and fell within the minor claims division of the Magistrates Court. Secondly, for the reasons already mentioned, properly advised, the Owner should have appreciated that the merits of these defects claims were weak and lacked a proper evidentiary foundation on quantum and therefore her expectations as reflected in her counter-offer for a substantial settlement sum were unrealistic.203 Objectively viewed on the available evidence, the Architect’s offer by comparison was realistic and it was unreasonable for the Owner to reject it. Thirdly, it was also unreasonable to continue to approach settlement on the basis that she could not settle with the Architect separately bearing in mind she (inconsistently) submits the Architect should not have participated in the Arbitration and accepted whatever outcome resulted. 201 Owner’s Response to Architect’s Table of Offers (FDN 314). 202 FDN 137. 203 See [314] above. -- 62 of 74 -- [2026] SADC 40 59 328 Taking into account the commonly considered matters and the special and exceptional circumstances of this case, the Owner’s rejection of the Architect’s third informal offer would justify an order for indemnity costs from 24 March 2021 if I had not already concluded that it was appropriate that the Owner pay the Architect’s costs of action on an indemnity costs basis from 20 June 2019. The Architect’s Fourth Offer – 27 July 2021 329 By a Calderbank letter dated 27 July 2021, the Architect’s solicitors offered to settle the Arbitration defects for an increased settlement sum of $70,000 comprising $55,000 for damages and $15,000 as a contribution to costs.204 The letter addressed the two matters raised in the Owner’s March 2021 response, explaining why, in the Architect’s view, there was no impediment to the Owner resolving the Arbitration defects separately with the Architect and why it considered the merits of the Owner’s claims weak. 330 This informal offer was made on the day before the first view and the formal commencement of the Arbitration hearing and three days after the Architect served its third list of documents disclosing 217 documents. The offer was only open until close of business on 30 July 2021, across a weekend. The Owner contends it was unreasonable for the Architect to rely on this offer, and her non-acceptance was not unreasonable in circumstances where the parties were engaged in a view and “the intense preparation for the Arbitration hearing itself.”205 331 Sufficiency of time to properly consider an offer is a relevant consideration. However, since the terms of this informal offer were the same as the Architect’s third offer apart from an increased settlement sum, I do not consider these circumstances a strong justification for the reasonableness of the Owner’s non- acceptance. The late discovery of numerous documents is also a relevant consideration, despite the Owner not asking for more time to consider the offer, either because it was only open for a short time or because of the recent discovery. 332 The Architect’s fourth offer was plainly on terms more favourable to the Owner than the outcome on judgment for the same reasons as for the Architect’s earlier offers. Similar considerations to those applying to the Owner’s unreasonable rejection of the Architect’s third informal offer apply to the Owner’s non-acceptance of this informal offer. 333 Balancing the competing considerations in favour of the parties’ opposing positions, I do not consider this informal offer would be an appropriate basis for awarding indemnity costs in the Architect’s favour. 204 FDN 284, Exhibit MM-10. 205 Written Submissions of the Respondent (Owner) Costs (FDN 292) [105]. -- 63 of 74 -- [2026] SADC 40 60 The Architect’s Fifth Offer – 29 September 2021 334 On 29 September 2021, the Architect filed a formal offer.206 335 The Owner filed a response to formal offer on 13 October 2021 not accepting the offer.207 It contained no explanation for the Owner’s position. 336 The terms of the Architect’s formal offer were clearly and simply expressed. It was a contract offer, on terms that the Architect pay within 28 days of acceptance the Owner a settlement sum of $150,000 allocating $80,000 to settle the allegations in respect for the stone façade and $70,000 for the balance of the Owner’s claims. It offered to dispose of the proceeding on the basis of a discontinuance and no order as to costs. It included a release term discharging the Architect from all claims connected to the proceedings on receipt of the settlement sum. 337 The offer lapsed within 14 days of service. Annexure A set out detailed reasons as to why the Architect considered it would be reasonable for the Owner to accept the offer. It was an expanded and updated version of the explanations provided in the Architect’s earlier offers. 338 The release was in the following terms:208 Upon receipt of the settlement sum, the Offeree releases and discharges the Offeror from all any claims, suits, demands, proceedings and/or actions of whatever nature howsoever arising whether known or unknown, relating to or connected to these proceedings. 339 The Owner contends that by the inclusion of the release term, “[o]n no view of the matter has the Architect achieved an outcome in the proceedings by which it can say it equalled or bettered its offer.”209 As is apparent, the scope of the release is broader than the result of a dismissal or discontinuance of the Owner’s claims against the Architect in the proceeding. Despite the breadth of this release, in the circumstances of this case, I consider the terms of the formal offer overall involved a genuine compromise and can be compared favourably to the ultimate judgment. This building project was the only dealing between the Owner and the Architect and the release only addressed existing claims and would not have operated to discharge the Architect from performing its few remaining obligations under the Building Contract (such as the issue of a certificate of practical completion and a final certificate). 340 For the same reasons I concluded that some of the Architect’s earlier offers were more favourable to the Owner than the outcome on judgment and the Owner’s non-acceptances or rejections unreasonable, I reject the Owner’s contentions about 206 FDN 284, Exhibit MM-11. 207 FDN 284, Exhibit MM-12. 208 Ibid, p 37. 209 Written Submissions of the Respondent (Owner) Costs (FDN 292) [109.2]. -- 64 of 74 -- [2026] SADC 40 61 the final declarations and it being necessary to resolve the disputes between all parties. 341 I also reject the more specific contention that the Owner’s rejection of this formal offer was reasonable because it was necessary to have all parties before the trial of the stone issues. Again, the Owner’s reliance on the complexity of the facts or the live issue as to whether the Architect had given an unauthorised instruction as to stone do not carry much weight in circumstances where it was and always remained the case that she could not prove breach of the varied contractual requirements for stone (whatever the criteria). If the Owner had succeeded in proving the Architect had breached its contractual and common law duties by giving the Builder an unauthorised instruction as to stone, she would have still failed to prove breach and any loss on the evidence she adduced at trial. 342 Taking into account the commonly considered matters and the special and exceptional circumstances of this case, the Owner’s non-acceptance of this formal offer would justify an order for indemnity costs from 14 October 2021 if I had not already concluded that it was appropriate that the Owner pay the Architect’s costs of action on an indemnity costs basis from 20 June 2019. The Architect’s Final Offers – June and July 2022 343 The Architect relies on a series of Calderbank and filed offers made shortly before the stone liability trial was due to start on 6 July 2022. The Arbitral Award was handed down on 28 June 2022 just before the first two offers expired on 30 June 2022 and the second two expired at 5:00pm on 5 July 2022. 344 The first Calderbank offer was made by the Architect’s solicitors’ letter dated 16 June 2022210 attaching an unsealed formal offer on the same terms and stated that was so.211 Both made three offers. Offer 1 was stated to be an alternative to both Offers 2 and 3 and Offers 2 and 3 alternatives to one another or both open for acceptance. 345 By Offer 1 the Architect agreed to pay the Owner $145,000 inclusive of interest in respect of any liability in relation to the claims pleaded in paragraphs 24 to 27 and listed in Annexure D of the Seventh Third Party Statement of Claim but excluding any liability in respect of issues referred to arbitration and was put on the basis that each party bear its own costs. 346 By Offer 2, the Architect offered to pay the Owner $25,000 inclusive of interest in respect of any liability in relation to the issues in Annexure D on the basis that each party bear its own costs. 210 FDN 284, Exhibit MM-13. 211 FDN 284, Exhibit MM-14. -- 65 of 74 -- [2026] SADC 40 62 347 By Offer 3, the Architect agreed to pay a sum representing 35% of any and all loss and damages resulting from the stone defect. There was no offer as to costs. 348 The Architect’s formal offer was sealed and dated 17 June 2022. A sealed copy was emailed to the Owner’s solicitors on 22 June 2022. The Owner’s solicitors immediately reserved her rights with regard to delay in service of the sealed offer. The Owner contends the sealed offer was therefore only available for acceptance for six days. I do not give this consideration any weight since the Owner’s solicitors had the unsealed copy on 16 June 2022 when it was emailed to them with the Calderbank letter on the same terms. In any event, the Owner was not prejudiced in responding. She filed a formal response at 4:50pm on 30 June 2022 rejecting the Architect’s formal offer and making a number of technical objections as to why it did not comply with the UCR.212 349 The Calderbank letter was open for 14 days until 5pm 30 June 2022. The formal offer was a consent judgment offer expiring seven days before the first day of trial and open until 30 June 2022. The formal offer was not a relevant offer within the meaning of UCR r 132.10 because it did not relate to the entirety of the Owner’s third party claim (because the Arbitration had been heard and the Arbitral Award was imminent) and Offer 3 omitted the requisite term as to costs. Therefore, UCR r 132.11 applies to the formal offer. 350 The Architect’s solicitors responded immediately to the Owner’s rejection of its offers by filing a further formal offer on 1 July 2022 and emailing a copy under cover of its solicitors’ letter,213 and making a further Calderbank letter on the same terms as the formal offer.214 Both offers attempted to address the Owner’s technical objections by amending the terms of the offers but the formal offer was now formulated as a contract offer. 351 I concur with the Architect’s contemporaneous complaint that it was disappointing that the Owner had not raised any complaints about the lack of clarity or uncertainty about the terms of the earlier offers until after they had expired given the proximity of the stone issues trial. 352 On 15 July 2022, the Owner filed a formal response to the Architect’s final formal offer215 and her solicitors sent a letter explaining why none of the offers were acceptable to the Owner and that the letter had only been finalised as soon as practicable after the Owner’s cross-examination.216 On 18 July 2022, the Owner filed a second response to the Architect’s final formal offer.217 212 FDN 186, a copy of which was not in evidence before me but was referred to in the Written Submissions of the Respondent (Owner) Costs (FDN 292) [122]. 213 FDN 284, Exhibit MM-16. 214 FDN 284, Exhibit MM-15. 215 FDN 284, Exhibit MM-18. 216 FDN 284, Exhibit MM-17. 217 FDN 284, Exhibit MM-19. -- 66 of 74 -- [2026] SADC 40 63 353 The Owner advances numerous matters in her filed responses, contemporaneous letter and submissions on costs as to why none of these offers justify an order for indemnity costs in the Architect’s favour on any ground. Many of these matters are unmeritorious or carry little weight in favour of the Owner’s position that it was reasonable for her not to have accepted any of these offers for the following reasons. 354 The Owner’s first submission is that all of these offers involved only a settlement between the Architect and the Owner. For the reasons already addressed, I do not accept that the final judgment is more favourable than the terms of these offers because of the declaratory relief or that it was not unreasonable for the Owner to not settle her claims against the Architect alone and proceed to trial against the Builder alone. 355 This leaves three broad contentions for consideration. Were the offers made so proximate to the stone liability trial that it was not unreasonable for the Owner not to accept any of them? Were the Architect’s offers so unclearly expressed as to be incapable of acceptance? As for Offers 1 and 3, were the offers as to costs problematic? 356 Having regard to the explanations in the Owner’s solicitors’ letter of 15 July 2022 as to why none of the offers were acceptable to her, it is apparent it was not because the Owner did not understand what the offers meant or that they were made too close to the start of the stone liability trial. I do not give any weight to the express qualification in her solicitors’ letter that it only dealt with some reasons as to why she did not consider it a reasonable offer. The letter otherwise makes it plain that the Owner’s primary reason for not accepting any of these offers is that she considered her prospects on her stone defects claim and her subsidiary claims for price adjustments for approved variations and PC Sums strong. The sticking point remained the amount of the settlement sum. 357 For the reasons already addressed, contrary to the statements in her solicitors’ letter, it was unreasonable for the Owner to consider the merits of her stone defects case were strong and that Associate Professor Danvers’ evidence would most likely be accepted. As for the Owner’s subsidiary claims, these claims were substantially unsuccessful because there was documentary evidence that showed the Architect issued written directions for the relevant works and the Builder submitted quotes for various items, contrary to the Owner’s spurious allegation that the Architect told the Builder what claims to make and did not assess them at all. 358 I therefore do not accept that there was insufficient time to properly consider these offers or that her technical objections about the wording of the offers or the issues of costs were material reasons for rejecting them at all such that her rejection was reasonable in all the circumstances. -- 67 of 74 -- [2026] SADC 40 64 359 As to the difficulties raised with regard to Offer 1 in the Owner’s responses to formal offers, I do not accept that the reference to liability in either version of it is an offer as to quantum not liability and left open a dispute as to liability. Nor do I accept that it was not a term capable of being included in a judgment because the matters referred to Arbitration were not severable or that it was difficult to understand precisely to which parts of the claim against the Architect it related. It was palpably clear that Offer 1 was an offer to compromise all remaining claims except the defects referred to Arbitration (that had already been heard and were the subject of the Award delivered on 28 June 2022). Her solicitors’ letter makes it plain that the Owner understood that was the case, despite these objections. The Owner’s non-acceptance of Offer 1 was unreasonable in all the circumstances. 360 The Owner submits the Architect provided no explanation for the basis for rejecting Offer 2. That is not correct. Annexure A to both formal offers reiterated the same reasons as to why the Architect considered it would have no or minimal liability to the Owner for over-certification claims. Having regard to the quantum of the Owners subsidiary claims and the settlement amount, Offer 2 was a genuine and reasonable compromise that ultimately was more favourable to the Owner than the outcome of these claims on judgment. If the Owner had accepted Offer 2, there would have been a notable saving of private and public resources in addressing the subsidiary claims. The Owner’s non-acceptance of Offer 2 was unreasonable in all the circumstances. 361 I have reached a different conclusion with regard to Offer 3. I accept the Owner’s submission that Offer 3 was in effect an offer as to apportionment between the Builder and the Architect on stone and if accepted, would not have eliminated much trial time or evidence. However, contrary to the Owner’s other contentions, it was therefore not so obscure and so incapable of definite or precise meaning to be void for uncertainty or incapable of acceptance or problematic for any of the reasons set out in the Owner’s response to formal offer filed on 18 July 2022.218 362 Taking into account the commonly considered matters and the special and exceptional circumstances of this case, the Owner’s unreasonable rejection of the Architect’s Offers 1 or 2 fortifies my conclusion that it is appropriate that the Owner pay the Architect’s costs of action on an indemnity costs basis from 20 June 2019. No Adverse Costs Order 363 In oral submissions, the Architect submitted the Court should generally rescind any existing interlocutory costs orders in the Owner’s favour, relying on the Builder’s Table of Costs Orders Made in the Action.219 218 FDN 284, Exhibit MM-19. 219 Emailed to Chambers by the Builder’s solicitor on 17 March 2025 at 2:45pm. -- 68 of 74 -- [2026] SADC 40 65 364 I decline to rescind any adverse costs orders made at an interlocutory stage by other judicial officers in the absence of due notice to the Owner of the basis for such an order or evidence as to why it would be an appropriate exercise of the Court’s discretion on costs in this case. Set-off of Judgment Sum and Costs 365 It is appropriate that the Architect’s liability for the de minimis judgment sum of $164.38 be set-off against the Owner’s far greater liability to the Architect on costs. Interest on Costs and Disbursements Paid Forthwith 366 The Architect seeks an order against the Owner that interest at a simple interest rate of 6% per annum is payable from the date of each payment of costs until the date of my orders. The Architect seeks an interim order that the Owner pays the Architect’s disbursements forthwith together with simple interest at the rate of 6% per annum from the date of each payment until 17 February 2025. The Architect relies on a table prepared by its solicitor that sets out the date and amount of the disbursements incurred and paid and the interest it claims of $678,044.68 including GST (comprising total disbursements of $582,023.11 including GST plus interest of $96,021.57).220 367 The Owner opposes any such orders. 368 As already discussed in context of the Builder’s claim for interest on costs, the Court’s power to make such an order is clear. It is also a relevant consideration that the Architect has paid significant costs and disbursements over more than ten years since March 2015 and is entitled to its costs of action and an award of indemnity costs from 20 June 2019. In order to be a complete indemnity, it would generally be appropriate for interest to be payable on costs incurred and paid after 20 June 2019 except to the extent that costs are shown by the liable party to be unreasonably incurred.221 369 Whilst the Architect has adduced some evidence showing what costs and disbursements have been paid from time to time, it has not put in evidence its tax invoices for costs incurred. Nor has the Architect put on any evidence about the likely quantum of its costs of action on the standard costs basis. The Owner has not had any opportunity to test whether any costs and disbursements paid by the Architect were unreasonably incurred. 370 In these circumstances, it would be premature and not appropriate to make any order for interest to be payable on the costs or disbursements the Architect has paid or an interim order for immediate payment. Such an application should be made to the taxing officer once the relevant costs have been fully identified and 220 FDN 307, Exhibit MM-20. 221 UCR r 191.1. -- 69 of 74 -- [2026] SADC 40 66 the Owner has had a proper opportunity to test whether or not the costs claimed were unreasonably incurred. COSTS - AS BETWEEN THE BUILDER AND THE STONE SUPPLIER AND THE OWNER Conclusion 371 For the reasons that follow it is appropriate that the Builder pay the Stone Supplier 85% of its costs of action and the Owner indemnify the Builder for its liability to the Stone Supplier on costs. Is the Stone Supplier entitled to its costs of action against the Builder? 372 As already mentioned, the Stone Supplier seeks the entirety of its costs of action against the Builder on the standard costs basis contending it was manifestly successful on the substantive issue in dispute. In the alternative, the Stone Supplier seeks 95% of its costs of action on the standard costs basis to take account of the Builder’s limited success on the minor claims for acid damaged CSS Items. 373 The Builder does not challenge the Stone Supplier’s claim for costs save to contend for a greater reduction to take account of its success on its claim for acid damaged CSS items. 374 The Owner contends there should be no orders as to costs including as between the Builder and the Stone Supplier, pre-empting the Builder’s claim for her to indemnify it for any such costs under UCR r 194.7. 375 As between the Builder and the Stone Supplier, the appropriate starting point is the ordinary one. That is, when a respondent’s claim against a third party fails, costs follow the event and the respondent is ordered to pay the third party’s costs of action on the standard costs basis.222 376 However, having regard to the Stone Supplier’s mixed success against the Builder, it is appropriate there be some reduction in the costs awarded against the Builder in the Stone Supplier’s favour in circumstances where the Builder was successful in its claim for acid cleaning damage. The damage caused by the Stone Supplier’s acid cleaning of the external stonework was a material issue and although a distinct and separate claim, also connected to the Owner’s stone colour and ‘quarry sap’ defects claims. In the circumstances of this case, it is appropriate to exercise the Court’s discretion on costs by wielding a broad axe and making a single costs order that the Builder pay the Stone Supplier 85% of its costs of action on the standard costs basis. Should the Owner indemnify the Builder for the Stone Supplier’s costs? 377 Having determined that it is appropriate that the Builder pay the Stone Supplier 85% of its costs of action on the standard costs basis, it is necessary to 222 Kheirs Financial Services Pty Ltd v Aussie Home Loans Pty Ltd (2010) 31 VR 463 (Kheirs) at [28]. -- 70 of 74 -- [2026] SADC 40 67 determine whether the Builder should be indemnified by the Owner for this costs liability. The Builder submits that it brought the third party claim against the Stone Supplier because the Owner’s allegations largely concerned the quality of the stones and less the quality of its workmanship in installing the stone. 378 Rule 194.7 of the UCR provides: 194.7—Indemnification against costs If a person is or would otherwise be liable to pay costs to a second person and the first person is entitled to be indemnified by a third person in whole or in part against that liability, the Court may order that— (a) the third person pay the costs of the first person to the extent of the indemnification; or (b) the third person pay to the second person an amount to the extent of the indemnification. 379 The overarching consideration here is what is fair and just between the parties by reference to their conduct in connection with the litigation, including the following considerations:223 • whether it was reasonable for the Builder to conclude that liability could be apportioned to the Stone Supplier • the merits of the Owner’s claims and whether they were hopeless or not • the connection between the claims between the Owner and the Builder and the Stone Supplier • whether the Builder and the Stone Supplier should have had the same legal representation • whether the Stone Supplier contesting the Builder’s claim was essential to its defence to the Owner’s claims against it • whether the real dispute was as between the Owner and the Stone Supplier • whether the Owner is guilty of some misconduct. 380 In this case, these considerations overall point in favour of the Builder’s entitlement to be indemnified by the Owner for its liability to the Stone Supplier for 85% of its costs of action. The Owner’s claim against the Builder about the quality of stone and, to a lesser extent, acid damage was the catalyst for the Builder’s claim against the Stone Supplier, and it was reasonable in the circumstances of this case to join the Stone Supplier to the proceeding.224 223 Kheirs; Furber v Stacey [2005] NSWCA 242; Mifsud v ICT Pty Ltd (1997) 7 Tas R 148; Edginton v Clark [1964] 1 QB 367; Leaver v Golsby [1964-5] NSWR 1833. 224 Kheirs at [28]; Edwards v Stocks (2009) 17 Tas R 454 at [10]; Boral Australian Gypsum Ltd v Victorian WorkCover Authority [2015] VSCA 187 at [11]. -- 71 of 74 -- [2026] SADC 40 68 381 It was also reasonable for the Builder to join the Stone Supplier having regard to the nature of the stone defects alleged against it. The Builder did not initially join the Stone Supplier to the proceeding. When it did in July 2018, the Owner’s allegations primarily concerned stone quality: stone that was discoloured and outside the specified and agreed colour range and chipped, mismatched, saw marked and packaging marked stone. 382 Whether it was reasonable to maintain the third party claim against the Stone Supplier having regard to the Owner’s hopeless case on breach is less compelling and points in a different direction. However, having regard to the Owner’s evolving case on stone defects, the acid damage claim and the important connection between ‘quarry sap’, stone colour and the effect of acid cleaning, on balance I have concluded it was reasonable for the Builder to maintain its third party claim against the Stone Supplier. Given the nature of the stone defects, it was important for the Stone Supplier who quarried, cut, graded and transported the stone to be part of the Builder’s defence on colour and quality. There was also a live question as to whether the acid cleaning of the stonework was part of the Builder’s scope of works. 383 Taking into account these matters and the different interests of the Builder and the Stone Supplier, I consider it was reasonable for these parties to be separately represented, noting the Stone Supplier’s election not to participate in the Arbitration. CONCLUSIONS 384 I will make the following orders. 1. The Owner is to pay the Builder’s costs of the stone issues on an indemnity costs basis. 2. The Owner is to pay the Architect’s costs of action on the standard costs basis until 19 June 2019 and from 20 June 2019 on an indemnity costs basis. 3. The Builder is to pay 85% of the Stone Supplier’s costs of action on the standard costs basis. 4. The Owner is to indemnify the Builder for its liability to the Stone Supplier on costs. 385 I will hear the parties as to the precise form of the orders to be made. -- 72 of 74 -- [2026] SADC 40 69 APPENDIX A – MATERIALS RELIED ON Builder Written Submissions of Builder FDN 287 29 January 2025 Builder’s Table of Costs Orders Made in the Action Emailed to Chambers 17 March 2025 Supplementary Written Costs Submissions of Applicant FDN 296 17 March 2025 Builder’s Cost Submissions in Reply to Owner’s Submissions FDN 297 19 March 2025 Supplementary Submissions of Builder in Relation to Interest FDN 300 19 March 2025 Supplementary Submissions of Applicant FDN 306 24 March 2025 Affidavit of Nicholas John Anderson FDN 285 19 December 2024 List of Authorities of Cirocco Constructions Pty Ltd FDN 295 17 March 2025 Affidavit of Nicholas John Anderson FDN 299 19 March 2025 Affidavit of Nicholas John Anderson FDN 304225 21 March 2025 List of Authorities of Cirocco Constructions Pty Ltd with Pinpoint References FDN 305 24 March 2025 Owner Written Submissions of the Respondent (Owner) Costs FDN 292 12 February 2025 Owner’s Response to Architect’s Table of Offers FDN 314 7 April 2025 Affidavit of Matthew John Hawke FDN 286 30 January 2025 225 See also FDNs 302, 303. -- 73 of 74 -- [2026] SADC 40 70 List of Authorities of the Respondent (Owner) FDN 293 12 February 2025 Architect Third Party’s Outline of Written Submissions on Costs FDN 289 4 February 2025 Affidavit of Myles Harold Mayo FDN 284 18 December 2024 Affidavit of Myles Harold Mayo FDN 308226 24 March 2025 Affidavit of Myles Harold Mayo FDN 310 26 March 2025 Draft Order FDN 290 4 February 2025 Stone Supplier Written Submissions of Tasmanian Sandstone Quarries Pty Ltd (ACN 092 517 283) FDN 288 30 January 2025 226 See also FDN 307. -- 74 of 74 --