Betta Build Group Pty Ltd v El Baba

District Court of NSW|2020-06-04

BACKGROUND

These reasons concern an application for costs by the defendant/cross-claimant ('the Owner') following proceedings brought against the plaintiff ('the Builder') in respect to construction works over a residential property at Bankstown undertaken in the period from October 2015 to February 2017. Proceedings were originally commenced in the New South Wales Civil and Administrative Tribunal ('NCAT') but were transferred to this Court.
The Owner was substantially successful in the proceeding, resisting claims brought by the Builder and establishing his own claims for an overpayment made to the Builder (for the sum of $29,961.36) and an additional claim for the cost of defective works [1] . Following a referral of the issue of the costs of rectification, the Owner obtained a monetary judgment in the sum of $227,941.21 in relation to the latter claim. Orders were also made for pre-judgment interest on each claim [2] .
The Owner now seeks a partial order for indemnity costs of the proceeding (embracing also the costs of the proceeding when it was before the NCAT) on various alternative bases. They are that the Owner achieved a no less favourable ultimate result than that which he offered to the Builder in (a) a Calderbank offer made on 3 July 2018 (the 'First Offer'); or (b) an offer of compromise served on 5 February 2019 (the 'Second Offer'); or (c) a Calderbank offer and offer of compromise served on 29 April 2019 (the 'Third Offer').
The Builder opposes the application for a special costs order up to 5 February 2019 when the Second Offer was made. The Builder contends that it should pay the Owner's costs of the proceeding on the ordinary basis up to and including 5 February 2019 and thereafter on an indemnity basis.

The First Offer

The material terms of the First Offer, for the purposes of this application, were (in substance): 1. the Builder pay the Owner the sum of $30,000; 2. all previous costs are vacated; 3. the Builder pays the Owner's costs as agreed or assessed of both proceedings; 4. the Owner to discontinue their claim as against the Builder; and 5. the Builder discontinue its claim against the Owner.
The First Offer (made on 3 July 2018) was stipulated to be open for acceptance until 31 July 2018. In the letter, the solicitor indicated the Owner's belief that his claim was fully valued in the sum of $517,000 (exclusive of costs). It also expressed the solicitor's belief that the case was not likely to turn upon the credit of witnesses, but rather determined on documentary evidence.
Assertions were made about the Builder's non-compliance with the Home Building Act 1989 (NSW): specifically, that (a) in defence of the claim of breach of statutory warranty, the Builder did not give written notice that it relied upon the Owner's instructions (per s 18F); and (b) construction works did not comply with the plans and specifications, which were incorporated as a term of the building contract (per s 7E). However, the letter did not, in terms, actually say, as was eventually found, that the Owner was likely to establish breaches of the statutory warranties contained in Part 2C of the Home Building Act.
The letter added that at the time this offer was served, the Owner had served all the evidence in chief it relied upon.
The Builder's solicitor sent two emails to the Owner's solicitor on 12 July 2018. Only one of them was directed to the terms of the offer; the other email was responsive to the solicitor for the Owner's proposed indication of an application to transfer the dispute to this Court. In my view, this latter email is irrelevant to this application.
The email from the Builder's solicitor to the Owner's solicitor which did respond to the First Offer.

The Second Offer

This offer was served (by email) at a point when the dispute was before the Court. It was served approximately 4 months before the trial commenced (which was 3 June 2019).
The terms of this offer were that Judgment be made in favour of the Owner for the sum of $100,000. It was stipulated to be open for 28 days.
This offer was made exclusive of costs. Indeed, it was expressed to be a 'rules offer' pursuant to r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) ('UCPR'). But, in the alternative, (i.e. if it was not a valid rules offer), it was said to be a Calderbank offer. The email contained assertions that it would be unreasonable for the Builder to reject the offer in circumstances where it: (1) failed to complete the works as contracted; (2) breached statutory warranties; and (3) is liable for more than $100,000 and would save interest and legal fees of further litigation by accepting the offer.
Although it was not proven by a document, Ms Toma deposed that the solicitor for the Builder responded to this offer with a counter-offer, whose terms were (relevantly) that: 1. each party discontinue with their claim against the other party; and 2. each side pay their own costs.
No provision was made for the resolution of the Builder's claims against the Owner.

The Third Offer

This offer was conveyed by email from the Owner's solicitor to the Builder's solicitor. Unlike the Second Offer, as a matter of form, the offer of compromise was contained in an attachment.
In that attachment, and with express reference to r 20.26, the Owner offered the following terms: 1. Judgment for the Cross-claimant for the sum of $41,000; and 2. Judgment for the Defendant on the Statement of Claim.
The offer was stipulated as being open for acceptance for 28 days.
The covering letter, to which the offer of compromise was attached, was dated 29 April 2019.

The Owner's contentions

The Home owner submitted that: 1. each offer involved a significant and genuine element of compromise; 2. the Second Offer and Third Offer complied with the requirements for 'rules offers'; 3. the Builder cannot demonstrate any exceptional circumstance to justify departure from the ordinary operation of r 42.14 of the UCPR; 4. the Owner was compelled to defend the Builder's claim; 5. for the First Offer, although the pleadings were not closed, the Owner had served all its evidence (save for one affidavit in reply). The Builder was on notice of the Owner's case and had all the information available to assess the owner's claim; 6. at the times of the offers, the Builder was legally represented; 7. the Owner has repeatedly tried to settle in an effort to avoid incurring costs; 8. no commercial offers of substance were made by the Builder; 9. each offer was open for a reasonable period of time; and 10. an indemnity costs order is appropriate to compensate the Owner for his trouble, expense and delay occasioned by a fully contested and adjudicated proceeding.

The Builder's contentions

As noted, the Builder accepts that an order for indemnity costs order should be made from 5 February 2019, but not before.
The Builder submits that rejection of the First Offer should not enliven the discretion to order indemnity costs. This was because the offer was made when the proceeding was before the NCAT. At the time the offer was made, expert evidence had not been served. Moreover, proceedings in the NCAT are generally conducted on the basis that the parties bear their own costs. Further acceptance of the offer would have involved the Builder abandoning its own claim for non-payment.

The First Offer

For a Calderbank offer, it is well established that it is not sufficient to justify an indemnity costs order that the offeror achieves a no less favourable result than the terms offered to the offeree. There is no presumption in favour of such entitlement: Jones v Bradley (No. 2) [2003] NSWCA 258 at [8].
I accept that the terms offered did signify a genuine attempt at settlement. In effect, the compromise offered was the payment of a sum ($30,000) out of an amount which, the offeror asserted, was a very small proportion of what it valued its claim $517,000, plus costs. In saying that, I note that at the time this offer was served, the dispute was apparently still before NCAT. Generally, parties bear their own costs in the NCAT (Civil and Administrative Tribunal Act 2013 (NSW), s 60), even if there are circumstances in which costs can be awarded. Once the dispute was transferred to this Court, it is to be treated as if it was commenced in the Court (Schedule 4, cl. 6(1)(b) of the Civil and Administrative Tribunal Act). That does not, automatically, subject the ultimately unsuccessful party to all costs of the proceeding, including those incurred whilst the dispute was before the NCAT, where a different rule generally applies to the recovery of costs to that which is contained in r 42.1 of the UCPR.
An important consideration is that the offeror establish that the offeree unreasonably rejected the offer. The question whether the offeree acted unreasonably is to be viewed prospectively. In particular, any explanation supplied by the offeror as to why the offeree should accept the offer is significant. In my opinion, the explanation offered by the Owner at the time of this offer was far from compelling. On the basis of the evidence before it, the Court is not in a position to say that the rejection of the offer was unreasonable. The correspondence concerning the offer at the time indicated a dispute between the parties as to whether the Owner's claim of 'systemic defect' had been particularised or evidenced and whether the claim was provable by the evidence served at that time. The Court has no sufficient evidence before it to consider whether at the time the offer was made the contentions that the Builder relied upon were reasonable, but equally no demonstration was provided by the Owner that they were not. Also, to some extent, the contentions raised in the Calderbank letter (noted in paragraph 8, above) were unnecessary to decide during the hearing.
Further, I add that contrary to the suggestion in the email from the Owner's solicitor, in the end it was not 'documentary evidence' which led the Court to make the findings that it did in relation to defective works. It was, to a substantial degree, a preference for expert evidence that might be said to have tilted the scales towards the Owner. At the time this offer was made, it would have been difficult for the Builder, properly advised, to have predicted that the Owner's expert evidence was to have that a decisive effect.
I reject the Owner's contention that a partial order for indemnity costs should be awarded on the basis of the Builder's rejection of the First Offer.
This only leaves the costs of the application for costs. The parties' have enjoyed mixed success on the application: the Owner has substantially achieved a partial order for indemnity costs, but the Builder consented to that partial order and successfully resisted the application insofar as the date from which costs should be paid on an indemnity basis. The parties should bear their own costs of the application.

ORDER

Without derogation of any previous cost orders made in the proceeding, I order the plaintiff to pay the defendant/cross-claimant's costs of the proceeding: 1. on the ordinary basis up to and including 5 February 2019; and 2. thereafter on an indemnity basis.
On the defendant/cross-claimant's application for cost of the proceeding generally, each party is to bear their own costs.

Endnotes

Betta Build Group Pty Ltd v El Baba [2019] NSWDC 331 (the 'Main Judgment').
Betta Build Group Pty Ltd v El Baba (No.2) [2020] NSWDC 238. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision 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 or Tribunal in which it was generated. Decision last updated: 04 June 2020

NCAT (Civil and Administrative Tribunal Act 2013(NSW)

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