These reasons for decision are in respect of an application for costs made by AMT Grand Homes Pty Ltd (the builder) following the determination of an application brought by Mr Babhoota (the homeowner).
The homeowner's application was brought as a building claim within the Tribunal's jurisdiction under s 48K of the Home Building Act 1989 (NSW) (the HB Act). The application was determined by me on 18 October 2022 following a one-day hearing held on 13 October 2022.
The builder seeks an order that the homeowner pay the builder's costs of the proceedings up to and including 16 August 2022 upon the usual basis, and thereafter upon the indemnity basis.
In the alternative the builder seeks an order that the homeowner is to pay the builder's costs of the proceedings upon the usual basis.
For the reasons that follow I have decided to dismiss the builder's application for costs.
[2]
Background
The application was lodged by the homeowner on 15 March 2022. The builder was self-represented until 17 June 2022 at which time it instructed Birch Partners Lawyers to act on its behalf.
On 18 August 2022 the Tribunal granted leave to the builder to be legally represented in the proceedings.
The final hearing took place on 13 October 2022.
The background to the dispute between the parties is set out in the reasons for decision published on 18 October 2022.
Initially the homeowner sought a work order in respect of 30 items which he said were defective and in breach of the statutory warranties set out in s 18B of the HB Act.
At the hearing the issues in dispute were narrowed as follows:
1. The parties agreed to a scope of works in relation to water ingress into bedroom 1 and a consent order for these works was made on the day of the hearing.
2. The parties agreed to rectification and the method of rectification in respect of 13 of the items claimed and orders were made accordingly.
3. The builder conceded liability in respect of items 2 (water ingress to garage) and item 4 (roof and stormwater drainage issues) so that the only issue in dispute in relation to those items was the appropriate method of rectification.
4. Following cross-examination of the experts, the homeowner confirmed that he was no longer pressing three of the items claimed.
With regard to the disputed items I made the following findings and orders:
1. The homeowner's claim in relation to Item 1 (front facade) failed;
2. In respect of item 2 (water ingress to garage) I made an order for works to be done in accordance with the scope of works proposed by the builder's expert;
3. In respect of item 4 (roof and stormwater drainage), I made an order for works to be done in accordance with the scope of works proposed by the builder's expert except for two minor adjustments:
1. in relation to the repairs to the repairs to the alfresco ceiling, the works were to be done in accordance with the homeowner's expert's scope of works; and
2. in relation to the rainwater tanks, the works were to be done in accordance with the agreed scope of works set out in the experts' joint report.
1. Of the remaining disputed items the homeowner was successful in relation to only one of those items, being the defective garage floor.
Overall, the homeowner was therefore successful in respect of approximately half of the 30 items claimed. Two of those items (repairs to the garage floor and the method of rectification of the alfresco ceiling) had not been conceded by the builder at or prior to the hearing.
[3]
Submissions
The builder filed costs submissions on 9 November 2022. Its solicitor confirmed in a letter to the Tribunal that a copy of those submissions had been served on the homeowner on 8 November 2022. I have considered those submissions when making this decision.
The due date for the homeowner's costs submissions was 15 November 2022. However, the homeowner had not lodged any costs submissions at the time of writing this costs decision, nor had the homeowner made a request for an extension of time within which to file and serve his submissions.
I have therefore not had the benefit of any submissions from the homeowner when considering the builder's costs application.
[4]
Issues
The issues to be determined are:
1. Should an order be made dispensing with a hearing, pursuant to s 50(1)(c) of the Civil and Administrative Tribunal Act 2013 (NSW) (the NCAT Act)?
2. Is the builder entitled to an award of costs and if so for what period and on what basis?
[5]
Should an order be made dispensing with a hearing, pursuant to s 50(1)(c) of the NCAT Act?
Section 50 of the NCAT Act relevantly provides:
50 When hearings are required
(1) A hearing is required for proceedings in the Tribunal except:
…
(c) if the Tribunal makes an order under this section dispensing with a hearing, or
…
(2) The Tribunal may make an order dispensing with a hearing if it is satisfied that the issues for determination can be adequately determined in the absence of the parties by considering any written submissions or any other documents or material lodged with or provided to the Tribunal.
(3) The Tribunal may not make an order dispensing with a hearing unless the Tribunal has first:
(a) afforded the parties an opportunity to make submissions about the proposed order, and
(b) taken any such submissions into account.
(4) The Tribunal may determine proceedings in which a hearing is not required based on the written submissions or any other documents or material that have been lodged with or provided to the Tribunal in accordance with the requirements of this Act, enabling legislation and the procedural rules.
The parties have had an opportunity to make submissions as to whether the issue of costs should be determined on the papers. Neither party has made submissions on this point or objected to the Tribunal dispensing with a hearing.
I am satisfied that the issue of costs can be adequately determined in the absence of the parties by considering the builder's written submissions. In my view, the parties would be put to unnecessary expense if a hearing on costs was held.
An order dispensing with a hearing under s 50(1)(c) of the NCAT Act has accordingly been made.
[6]
Costs - legislative framework
Section 60 of the NCAT Act applies in respect of the parties' respective costs applications.
This section relevantly provides:
60 Costs
(1) Each party to proceedings in the Tribunal is to pay the party's own costs.
(2) The Tribunal may award costs in relation to proceedings before it only if it is satisfied that there are special circumstances warranting an award of costs.
(3) In determining whether there are special circumstances warranting an award of costs, the Tribunal may have regard to the following:
(a) whether a party has conducted the proceedings in a way that unnecessarily disadvantaged another party to the proceedings,
(b) whether a party has been responsible for prolonging unreasonably the time taken to complete the proceedings,
(c) the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law,
(d) the nature and complexity of the proceedings,
(e) whether the proceedings were frivolous or vexatious or otherwise misconceived or lacking in substance,
(f) whether a party has refused or failed to comply with the duty imposed by section 36 (3),
(g) any other matter that the Tribunal considers relevant.
Clause 38 of the Civil and Administrative Tribunal Rules 2014 (NSW) (NCAT Rules) modifies the application of s 60 in certain proceedings before the Consumer and Commercial Division of the Tribunal.
Notably, cl 38(2) relevantly provides:
(2) Despite section 60 of the Act, the Tribunal may award costs in proceedings to which this rule applies even in the absence of special circumstances warranting such an award if -
…
(b) the amount claimed or in dispute in the proceedings is more than $30,000.
[7]
Is the builder entitled to costs and if so, for what period and on what basis?
[8]
Submissions
The builder's costs submissions may be summarised as follows:
1. There is no need to show special circumstances as the homeowner sought work to the value of approximately $65000 and therefore the amount claimed or in dispute was more than the prescribed amount of $30,000.
2. In any event, special circumstances exist in these proceedings, including in particular a "Calderbank" offer which the builder made on 16 August 2022 (the Calderbank Offer).
3. An award of costs is to compensate a party where that party has been put to the expense of bringing or defending a claim. It is made for the benefit of the successful party: Oshlack v Richmond River Council (1998) CLR 72 (Oshlack).
4. In the Calderbank Offer, the builder offered to settle the dispute by agreeing to a work order to rectify various defects. For the most part the builder offered to rectify those defects in accordance with the scope of works set out in the builder's expert report (the Coombes Report). In other respects the builder offered to rectify the defects in accordance with the agreed scope of works in the joint report prepared by the parties' respective experts. With regard to the defective internal doors identified by the builder's expert, the builder offered to replace and paint them.
5. The offer was open for a period of two weeks.
6. The homeowner did not accept the offer and allowed it to lapse.
7. On 23 August 2022 the homeowner wrote to the builder asking if it would commence rectification of the water ingress prior to the hearing, at least in the bedroom, as the parties' experts had agreed on the defect and the rectification method and the water ingress was causing further damage and disruption.
8. On 6 September 2022 the builder's solicitor Mr Birch wrote to the homeowner advising that his client was willing to start the rectification works in relation to the water ingress into the master bedroom and asking for access the following day.
9. On the same date the homeowner replied to Mr Birch informing him that he was out of Sydney and unable to provide access.
10. The builder has at all times been ready, willing and able to start the repairs to repair the master bedroom water ingress and the homeowner has prevented the timely commencement of this work.
11. Except for the garage floor and damaged alfresco ceiling linings, the Tribunal has ordered the builder to rectify in accordance with the Coombes Report, which is what was offered in the Calderbank Offer and conceded on the morning of the hearing.
12. According to the principles set out in GPM Constructions Pty Limited v Baker (No 2) [2018] NSWCATAP 163, the builder is entitled to indemnity costs after the date of the Calderbank Offer.
[9]
Consideration
The amount in dispute was in excess of $30,000. This means that the Tribunal is not required to be satisfied that there were "special circumstances" in order to make an award of costs and that the Tribunal has a general discretion as to whether to award costs: cl 38(2) NCAT Rules.
Clause 38 gives the Tribunal a wide discretion to make an order for costs. It does not specify the factors the Tribunal must take into account in exercising the discretion, although the discretion to make such an order must be exercised judicially: see, for example, Ruddock v Vadarlis [2001] FCA 1865 at [9].
In BNT Constructions Pty Ltd v Allen [2017] NSWCATAP 186 the Appeal Panel, having set aside a costs order made in the Consumer and Commercial Division, decided to re-exercise the costs discretion. Clause 38 was the applicable costs provision in that case. At [67] the Appeal Panel noted the following principles relevant to the exercise of the discretion:
(1) the starting point is that a successful party should be entitled to an order for costs in his favour;
(2) an award of costs is by way of an indemnity and not as punishment;
(3) there is no absolute rule that, absent disentitling conduct, a successful party is to be compensated by the unsuccessful party;
(4) the factors to be considered are not to be confined as to do so would constrain the general discretion;
(5) the relative success of the parties on different issues and the time taken to determine them may be relevant;
(6) the nature of the proceedings is relevant;
(7) the proper exercise of the discretion requires a decision maker to do justice between the parties and to exercise the discretion having regard to relevant considerations and in a manner which is not arbitrary and capricious.
The builder's submissions do not specifically address who was the successful party but, by seeking a costs order for the period prior to the issue of the Calderbank Offer, the builder's submissions imply that the builder was the successful party. I do not agree. Of the 30 items claimed, the homeowner was successful in relation to approximately half of those items and notably, with regard to items 2, 3 and 4, was successful in relation to liability, and partially successful in relation to method of rectification. Those items represent the most serious defects asserted by the homeowner as they involve waterproofing and water ingress issues.
The practical result therefore was that each party enjoyed a degree of success. The fact that the builder had conceded the majority of the items in relation to which the homeowner was successful does not mean the homeowner was not successful in relation to those items.
In light of the mixed result, I do not think it can be said that the builder was the "overall" successful party in the proceedings and there is nothing in the builder's submissions which convinces me that, at least until the date of the Calderbank Offer, the builder is entitled to costs.
With regard to the Calderbank Offer, it is open to the Tribunal to consider the effect of such an offer in accordance with common law principles in determining the exercise of its costs discretion.
In Miwa Pty Ltd v Siantan Properties Pte Ltd (No. 2) [2011] NSWCA 344 Basten JA identified two questions which are relevant to a Calderbank offer. They are whether there was a genuine offer of compromise and whether it was unreasonable of the offeree not to accept it.
As to the first question, I am not satisfied that the settlement offer made in the Calderbank Offer represented a genuine offer of compromise. The effect of the offer was that the builder was agreeing to rectify defects in accordance with the recommendations of the builder's own expert and the joint expert report. The only exception to this is that the builder also offered to replace (rather than repair) the defective internal doors. However, by the time of the hearing, the builder's expert agreed that the defective doors should be replaced rather than repaired. The offer therefore amounted to no more than what the builder's own expert acknowledged needed to be done, and therefore did not involve the builder giving anything of substance away. As it transpired, the homeowner achieved more than what was offered in the Calderbank Letter because he was also successful in relation to the garage floor and the method of rectification of the alfresco ceiling. For these reasons the offer made in the Calderbank Letter did not represent a genuine offer of compromise.
Moreover, even if the offer had amounted to a genuine compromise, I would not have been satisfied that the rejection of the offer was unreasonable.
Determination of whether or not the rejection of an offer was reasonable is an evaluative judgment requiring a consideration of the facts and circumstances specific to the case: Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 at [19]. Further, reasonableness is not to be determined with hindsight. Rather, the strength or otherwise of the applicants' claim should be considered as at the time of the offer: Gretton v Commonwealth of Australia [2007] NSWSC 149.
I am not satisfied that it was unreasonable for the homeowner to reject the Calderbank Offer for the following reasons:
1. Had the homeowner accepted the Calderbank Offer he would in fact have been worse off. This is because the Tribunal ultimately found in the homeowner's favour in relation to two additional items not included in the Calderbank Offer (ie the garage floor and the method of rectification of the alfresco ceiling).
2. The Calderbank Offer did not provide any explanation or analysis as to why the homeowner's prospects of achieving a better outcome, assessed at the date of the offer, were limited (and the builder's costs submissions do not address this issue at all).
3. Although the Calderbank Offer stated that it was made "in accordance with the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333", the offer did not elucidate what those principles were, and importantly, did not specifically state that the builder would apply for costs or indemnity costs if the homeowner rejected the offer. In circumstances where the homeowner was unrepresented, he cannot be expected to have been familiar with the Calderbank principles, or to understand that the builder was in effect foreshadowing an application for costs.
I am therefore not satisfied that the Calderbank Offer justifies an award of costs in favour of the builder for the period after 16 August 2022.
For these reasons I am refusing the builder's application for costs.
[10]
I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar
[11]
Amendments
28 August 2023 - Formatting amendments.
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Decision last updated: 28 August 2023