BNT Constructions Pty Ltd v Allen

NCAT Appeal Panel|2017-07-26

Solicitors: Adams Partners, Lawyers (Appellant) Turnbull Bowles, Lawyers (Respondents) File Number(s): AP 17 / 18169 Publication restriction: Unrestricted Decision under appeal Court or tribunal: Civil and Administrative Tribunal Jurisdiction: Consumer and Commercial Division Citation: [2016] NSWCATCD Date of Decision: 29 March 2017 Before: P Boyce, Senior Member File Number(s): HB 16 / 18992

REASONS FOR DECISION

This is an appeal from a decision of the Tribunal ordering the appellant to pay the respondents' costs of the proceedings below.
The appellant submitted that the Tribunal below failed to take into account material considerations on the question of costs. For the reasons that follow, we accept the appellant's submissions and allow the appeal.

The Decision Below

The hearing in the Tribunal took place on 1 February 2017. Mr Taylor, the director of the appellant, appeared for the appellant, and a solicitor appeared on behalf of the respondents.
The affidavit of Ms Drill referred to above was read and annexures tendered. She was cross-examined. The Tyrells Report was tendered and Mr Capaldi was cross-examined.
Mr Taylor's affidavit was read, annexures tendered, and Mr Taylor was cross-examined.
Of the eight defects set out in the Tyrells Report, the Tribunal rejected two and upheld six. Of the six upheld, the Tribunal recorded that the appellant had said at the hearing that it was willing to rectify each defect.
The Tribunal noted the respondents' resistance to an order that the appellant rectify the defects (rather than pay a monetary sum). The Tribunal referred to Owners Strata Plan 78465 v M D Constructions Pty Ltd [2016] NSWSC 162. In that decision, which considered common law obligations on owners to mitigate their damage, and common law considerations akin to s 48MA of the HBA, Hammerschlag J determined (at the risk of over-simplification) that a builder must establish that an owner's refusal to allow a builder to rectify defects was unreasonable. In that case his Honour found that the builder had failed to establish the owner had acted unreasonably in refusing the builder an opportunity to remedy the defective work.
The Tribunal noted the respondents' submissions that the appellant had been given a number of opportunities to attend the premises and rectify the defects, but had failed to do so.
The Tribunal accepted the appellant's explanations for not attending the premises and rectifying the defects, and was satisfied that the appellant was ready, willing and able to carry out the rectification work. The Tribunal distinguished the result in Owners Strata Plan 78465 on the facts. The Tribunal rejected the respondents' claim for a monetary sum, and made an order that the appellant rectify the six defects upheld, and to do so in accordance with the recommendations set out in the Tyrells Report (the "work order").
The Tribunal found that the respondents' estimate of the costs of rectification was appropriate had an order for the payment of a monetary sum have been made. The Tribunal said that if the rectification works were not carried out per the Tyrells Report prior to 23 September 2017, the respondents had a right to renew the proceedings to seek a monetary sum.
There is no appeal by the respondents from the determination of the Tribunal to make the work order rather than pay the respondents a monetary sum.
The respondents applied for costs. The Tribunal referred to r 38 of the Civil and Administrative Tribunal Rules 2014 (NSW) (the "NCAT Rules"). That rule, in short, provides that where the amount claimed or in dispute exceeds $30,000 (as it does in this case), the Tribunal may award costs in the proceedings even in the absence of special circumstances. The reference to "special circumstances" is a reference to one of the requirements contained in s 60 of the Civil and Administrative Tribunal Act 2013 (No 2) (NSW) (the "NCAT Act")
The parties were invited to, and did, make written submissions on the question of costs.
In its reasons for decision the Tribunal noted, correctly, that the awarding of costs is discretionary, and that awards of costs are made in accordance with the general principles of awarding costs in proceedings. Neither party to this appeal contended otherwise.
The Tribunal then said: "68. That is, in the ordinary course costs follow the event. 69. The Tribunal is satisfied that in the proceedings before it is (sic) appropriate to make an order for costs in favour of the (respondents) against the (appellant). 70. The (appellant) is to pay the (respondents') costs of the proceedings as agreed or assessed."

Amendment of the Grounds of Appeal

The appellant was not legally represented at the Tribunal, and remained so in this appeal until shortly prior to 19 June 2017.
On 27 June 2017, the appellant's solicitors filed submissions on the appeal dated 19 June 2017, together with proposed Amended Grounds of Appeal.
In short, the Notice of Appeal, whilst mentioning the costs order below, did not specify any grounds of appeal, but was limited to making various submissions on costs.
On 12 July 2017, the respondents' solicitors filed submissions on the appeal dated 11 July 2017. Those submissions recorded receipt of the Amended Ground of Appeal.
At the hearing of the appeal the appellant submitted that leave to amend the Grounds of Appeal ought to be granted because: 1. the Amended Grounds of Appeal did not "extend much" the existing Grounds of Appeal; 2. the existing Grounds of Appeal concerned the Tribunal's costs order, as did the proposed Amended Ground of Appeal; 3. there was no prejudice to the respondents; 4. the appellant had previously been unrepresented; 5. s 36 of the NCAT Act provided that the guiding principle for the application of the NCAT Act and the procedural rules, in their application to proceedings, was to facilitate the just, quick and cheap resolution of the real issues in the proceedings; and 6. the appellant would suffer an injustice if the application was not granted.
The respondents opposed the granting of leave. The respondents: 1. accepted the existing Grounds of Appeal concerned the Tribunal's costs order, as did the proposed Amended Ground of Appeal; 2. could not identify any prejudice which would be suffered by them if the application was granted; 3. said that the appellant had not attended to the rectification works ordered by the Tribunal; and 4. made some preliminary submissions as to the substance of the appeal.
We are of the opinion that the appellant ought to be granted leave to amend the Grounds of Appeal in accordance with the form annexed to the appellant's solicitors' submissions dated 19 June 2017.
We have formed that opinion having regard to s 36 of the NCAT Act, the injustice which would befall the appellant if the application were not granted, the absence of prejudice to the respondents, the early notification of the proposed amendments to the respondents (before the respondents filed submissions), and the substantial overlap between the existing Grounds of Appeal and the proposed Amended Grounds of Appeal, at least as to the facts in issue rather than the grounds themselves.
The fact (if it be the case) that the appellant has not attended to the rectification works ordered by the Tribunal is not relevant. The order of the Tribunal is that the work order must be complied with at any time before 23 September 2017. That date has not yet passed.
The preliminary submissions made by the respondents as to the substance of the appeal are not relevant to this application. The respondents did not submit the application ought to be refused because the amendments were doomed to fail.

Amended Ground of Appeal

As refined in oral submissions, the appellant had but one ground of appeal, namely that the Tribunal erred in exercising its discretion on costs in that it failed to take into account material considerations, namely the various offers by the appellant to rectify the defects and that the appellant was successful at the hearing in obtaining a work order rather than the payment of monetary compensation as sought by the respondents.
Given some terminology used in the Amended Grounds of Appeal, the appellant was asked whether it appealed from the costs order on the basis of inadequate reasons. The appellant answered in the negative.

The Parties' Submissions

The appellant cited the well-known passage from the judgment of Dixon, Evatt and McTiernan JJ in House v R [1936] HCA 40; (1936) 55 CLR 499, at 504-5, namely: "The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred." [Our emphasis.]
The appellant submitted that its various offers to rectify the defects (which would be at a significantly cheaper cost to it than the amount claimed as monetary compensation), and the associated contention that the Tribunal ought to make a work order rather than order the payment of a monetary sum, were material considerations to the exercise of the discretion as to costs.
These matters were adverted to in the appellant's written submissions on costs to the Tribunal.
The Tribunal's reasons do not mention those considerations in its judgment on costs, nor does the Tribunal make any reference to the appellant's submissions on costs (in contradistinction to the appellant's submissions on the eight defects in issue).
In Pollard v RRR Corporation Pty Ltd [2009] NSWCA 110 McColl JA, with whom Ipp JA and Bryson AJA agreed, said at [62] - [63]: "[62] In Beale (at 443) Meagher JA referred to the requirement that a judge should refer to evidence which is important or critical to the proper determination of the matter as the first of the three fundamental elements of a statement of reasons. While his Honour explained that it was unnecessary to refer to the relevant evidence in detail, especially in circumstances where it is clear that the evidence has been considered, he added that where such evidence was not referred to by the trial judge, an appellate court may infer that the trial judge overlooked the evidence or failed to give consideration to it, referring to North Sydney Council v Ligon 302; see also TCN Channel Nine Pty Ltd v Anning [2002] NSWCA 82 ; (2002) 54 NSWLR 333 at [150] per Spigelman CJ (Mason P and Grove J agreeing). Meagher JA added that "[w]here conflicting evidence of a significant nature is given, the existence of both sets of evidence should be referred to." [63] Where, as in the present case, there is documentary material arguably supporting a party's case, that material must be considered in the judge's reasons in a satisfactory way: State Rail Authority (NSW) v Earthline Constructions Pty Ltd (in liq) [1999] HCA 3 ; (1999) 73 ALJR 306(at [94]) per Kirby J." [Emphasis ours.]
These considerations apply equally to arguments as they do to evidence. Essentially, a decision maker must engage with the case presented by each of the parties: Whalen v Kogarah Municipal Council [2007] NSWCA 5 at [40].
The respondent submits that these considerations were taken into account by the Tribunal, and correctly points to various parts of the Tribunal's decision where reference is made to the appellant's position being that it was prepared to rectify the defects.
However, be that as it may, the Tribunal did not refer to all of the appellant's pre-proceedings and pre-trial offers to rectify, nor did it refer to them in the context of determining costs. Rather, it seems to us that the Tribunal was setting out the appellant's position at trial for the purpose of determining what orders, if any, ought be made in relation to each defect, and not in relation to the question of costs.
In the circumstances of this case, where the appellant made specific mention of the considerations referred to above in reasonably detailed written submissions, the absence of any mention of those considerations in that part of the reasons concerning costs, the absence of any mention of the evidence in support and the absence of any mention of the appellant's submissions, we infer that the Tribunal overlooked those considerations when determining that issue.
In our opinion, the Tribunal failed to take into account those considerations. Those considerations are plainly relevant to the exercise of the discretion as to costs, as the respondents' solicitor properly conceded in her oral submissions on the appeal. Accordingly, the exercise of discretion miscarried per House v R.
Such an error is an error law, for which the appellant does not require leave to appeal.

Re-Exercising the Discretions As To Costs

Section 81 of the NCAT Act provides that in determining an internal appeal (of which this is one) the Appeal Panel may, inter alia, allow an appeal, set aside the decision under appeal and substitute another decision for it.
Having regard to s 36 of the NCAT Act, the costs to the parties if the matter was to be remitted to the Tribunal to re-exercise the discretion as to costs, and that we were in as good a position as the Tribunal to determine the costs of the hearing below, we indicated to the parties that, if the appeal were upheld, we would decide the question of costs of the hearing below. Neither party objected to that course. Accordingly, we directed the parties to make such submissions on costs of the hearing below as they deemed fit. The parties did so.
The parties did not disagree as to the relevant principles to be applied. They include: 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 Appellant's Submissions

The appellant submitted that it made a number of offers to rectify the defects, and contended that a work order was the appropriate remedy rather than an order for the payment of a monetary sum as sought by the respondents.
The appellant submitted that it was the successful party at the hearing, and not the respondents. That is because, the appellant submitted, its position at the hearing (and prior thereto) was that it was willing to rectify the defects. The respondent resisted that order, but the appellant was successful in persuading the Tribunal that such an order ought to be made.
The appellant submitted that it, and not the respondents, had complied with its obligation pursuant to s 36(3)(a) of the NCAT Act to co-operate with the Tribunal in facilitating the just, quick and cheap resolution of the real issues in the proceedings. It had done so, the appellant submitted, by always adopting the position that it was willing to rectify the defects.
The appellant cited in support Duke v Eastern Gas Pipeline Pty Ltd [2001] ACompT 3; (2001) ATPR 41-827, a decision of the Australian Competition Tribunal. In that case the Tribunal said at [8]: "Costs orders should only be made in proceedings before the Tribunal where there are circumstances which justify the making of an order. The fact that a particular outcome of proceedings before the Tribunal may be seen as conducive (or not conducive) to the commercial interests of a party, would not ordinarily provide, of itself, a sufficient reason for making a costs order for (or against) that party. In principle, the power to order costs should be exercised sparingly, and not so as to discourage participation in the review process. Generally the power to award costs should be reserved for cases where a party's participation in the proceedings before the Tribunal materially and unnecessarily increases what would otherwise have been the costs of those proceedings.

The Respondents' Submissions

The respondents submitted that they were justified in opposing the work order, and in refusing the appellant's earlier offers to rectify the defects. They submitted that their belief that the appellant was not competent to make the necessary repairs had a reasonable basis. They refer to the evidence of Ms Drill referred to earlier in these reasons in support of this submission.
The respondents submitted that the appellant did not tender any expert evidence at the hearing. The Appeal Panel asked how that fact was relevant to the question of costs. The respondents' solicitor said that it was not relevant.
The respondents drew the Appeal Panel's attention to various authorities concerning defective residential building work and in which either a work order was not made, or a work order was made but was not complied with resulting in the return of the proceedings to the relevant tribunal. In this case, the respondents submitted, the appellant had failed to comply with the Tribunal's work order.
The respondents submitted that the appellant had delayed the progression of the matter before the Tribunal. The respondents relied upon certain evidence of Ms Drill in which she deposed to a number of occasions between 10 and 30 August 2016 in which the appellant had failed to take the opportunities presented to attend the site. The respondents also relied upon an email from the appellant to their solicitor dated 30 August 2016 in which the appellant said that it wouldn't be needing access to the property.
The respondents were asked whether there were any directions made by the Tribunal by way of case management which the appellant had not complied with. The answer was in the negative.
The respondents submitted that the Tribunal had accepted the evidence of their expert set out in the Tyrells Report. They submitted that they were successful on a majority of the defects. They submitted that they had been successful in the proceedings on quantum.
The respondents said that they had made offers to settle the proceedings and that these offers ought be taken into account. The first of those offers was dated 15 July 2016. In that offer, the respondents offered to settle the proceedings if the appellant agreed to pay the respondents $65,000 plus costs as agreed or assessed. In a subsequent offer dated 24 January 2017 the respondents offered to settle the proceedings if the appellant agreed to pay the respondents the sum of $60,000 plus costs as agreed or assessed.
The respondent relied on the provision in s 60 of the NCAT Act to the effect that the Tribunal may award costs in relation to proceedings only if it is satisfied there were special circumstances warranting an award of costs.
The respondent relied upon their submissions on costs before the Tribunal, and dated 1 and 14 February 2017. In substance, the submissions made in those two documents are the same submissions as have been made on this Appeal.

Consideration

Although the respondents obtained orders in their favour, the appellant obtained a measure of success in the proceedings because it was successful in persuading the Tribunal to make a work order rather than to order it to pay the respondents a monetary sum.
In addition, the appellant had made a number of offers to rectify the defects both before and after proceedings had commenced, in substance those offers being equivalent to the work order (although not wholly).
The respondents had rejected these offers as they believed the appellant was not competent to undertake the rectification works, and was not genuinely willing and able to undertake them. However, the Tribunal was unpersuaded by the evidence on that issue. Implicitly, the Tribunal must have rejected the respondents' argument that the respondents' rejections of the offers made by the appellant were reasonable or were reasonably based. As was noted by the Tribunal, s 48MA of the HBA provided that rectification of defective work by the responsible party is the preferred outcome.
We reject the appellant's submission based upon Duke v Eastern Gas Pipeline Pty Ltd. That decision concerned a particular Tribunal exercising purely administrative power. In that case the Tribunal said, at [5]: "The Tribunal's decision is administrative in character. It does not resolve any legal rights of, or controversy between, AGL and Duke. Nor is the focus of the Tribunal's enquiry upon the narrow commercial interests of particular persons. The decision is concerned with the wider question of whether the coverage criteria are met, so as to justify regulation of the Pipeline in aid of the promotion of competition in relevant markets. 'Any person' may initiate the administrative process which culminates in the Tribunal's decision. As the proceedings before the Tribunal are not, either in substance or in form, inter partes litigation, there is no particular reason for applying principles developed in connection with such litigation to proceedings before the Tribunal."
In the present case, and unlike the position in Duke, the Tribunal did resolve legal rights between the appellant and respondents. Further, and again unlike in Duke, the Tribunal's enquiry was solely concerned with the interests of the particular parties. There was no wider question in this case as there was in that case.
In Duke, the Tribunal rejected the submission that the question of costs in those proceedings was to be determined upon the same principles as are generally applicable in inter partes litigation of the kind we are presently dealing with. In the sentence immediately preceding the passage quoted by the appellant and set out earlier in these reasons, the Tribunal said: "For these reasons, the adoption of a general rule applicable in the case of inter partes litigation to the proceedings before the Tribunal would not be conducive to the effective discharge by the Tribunal of its statutory functions."
Therefore, we do not agree that the considerations mentioned in Duke at [8] are applicable to the present proceedings.
We also reject the appellant's submissions that it, and not the respondents, had complied with the obligations set out in s 36 of the NCAT Act. There is no evidence which indicates other than both parties complied with those obligations.
Whilst achieving a measure of success in the proceedings, the appellant was not wholly successful. Whilst it had adopted and communicated a position that it was willing to rectify defects, there remained some areas of dispute as to the method and extent of the rectification works required.
Although the appellant had offered to rectify defects, there was dispute by it as to precisely what it would rectify, and how it would do so. For example, the Points of Defence said that the appellant was ready, willing and able to rectify defects for which it was responsible, and stated that the appellant remained ready to do any work it was obliged to do. Importantly, as the Tribunal found, the appellant did not comply with Fair Trading's Rectification Order.
One example is Item 8 of the eight items contested (it being the most expensive Item), being cracking in external cladding joints. The appellant, as we have noted earlier, had put forward four options for the consideration of the respondents. None of those options included a rectification method the same as, or substantially similar to, that proposed by Mr Capaldi. The four options contended for by the appellant could fairly be described as considerably less extensive than the method proposed by Mr Capaldi.
However, in the proceedings below, the appellant did not tender any expert evidence to support any one or more of those options as being reasonable or that they would achieve the desired result. At the hearing, and for the first time on the evidence, the appellant conceded that it was willing to carry out the recommendations proposed by Mr Capaldi. Thus, the respondents have been put to the expense of obtaining expert evidence in order to have that defect rectified in a way which the expert evidence regarded as suitable.
We do not agree with the respondents that the fact the appellant has not yet rectified the works pursuant to the Tribunal's order is of any relevance. The order made was that the rectification work had to be completed by 23 September 2017, and that date has not yet arrived.
The fact that in other cases work orders have not been made, or when made, parties have sometimes had to return to the relevant Tribunal for relief because of non-compliance with a work order, is similarly irrelevant to the question of costs. If the appellant does not comply with the work order the respondents remedy is to exercise the leave granted to them by the Tribunal to renew the proceedings before the Tribunal and then, presumably, seek an order that the appellant pay them a monetary sum.
We reject the respondents' submissions that the appellant has unduly delayed the proceedings. The only evidence identified to support an allegation of delay concerned a few weeks in August 2016. The respondents could not point to any directions issued by the Tribunal with which the appellant had failed to comply.
We reject the respondent submissions based upon the two offers to settle for the sums of $65,000 and $60,000 plus costs. At least at this point in time, the result achieved by the respondents in the proceedings is less favourable to the respondents than those offers.
We also reject the respondent's submissions based upon s 60 of the NCAT Act. The amount claimed in the proceedings was more than $30,000. In such circumstances r 38 of the NCAT Rules applies, displacing the provisions of s 60.
In our opinion, both parties were successful in different ways in the proceedings below, but the respondents have been put to the unnecessary expense of obtaining evidence from Mr Capaldi.
Whilst the Tribunal was prepared to make the work order, it is apparent that the Tribunal considered the making of the order itself would add additional motivation to the appellant to rectify the defects, together with the leave granted to the respondents to renew the proceedings if the rectification ordered was not complied with. It is also apparent that the appellant's offers of rectification were less in scope and method to that proposed by Mr Capaldi.
In our opinion, the appellant ought pay the respondents' costs of, and incidental to, the expert evidence obtained by the respondents, including the costs of the Tyrells Report, the attendance of Mr Capaldi to give evidence, the costs of Mr Capaldi in attending any necessary conferences, site inspections and the like, and the respondents' legal costs in retaining, briefing and making arrangements for any attendances of Mr Capaldi in relation to the proceedings. For the avoidance of doubt, this order does not include any costs of and incidental to the preparation of Ms Drill's affidavits.
Otherwise, because both parties have been successful in different ways in the proceedings it is our view that the parties are to pay its, his and her own costs of the proceedings below.
In relation to the costs of the appeal, in our opinion the appellant was successful and would ordinarily be entitled to its costs of the appeal on the ordinary basis. However, should either party desire to contend for a different costs order, they may apply per the Orders made below.

Orders

We make the following Orders: 1. Leave granted to the appellant to file the Amended Notice of Appeal in the form annexed to the appellant's written submissions dated 19 June 2017. 2. Appeal allowed. 3. The decision of the Tribunal below as to costs be set aside, and in lieu thereof order that: 1. the appellant to pay the respondents' costs of, and incidental to, the expert evidence obtained by the respondents, including the costs of the Tyrells Report, the attendance of Mr Capaldi to give evidence, the costs of Mr Capaldi in attending any necessary conferences, site inspections and the like, and the respondents' legal costs in retaining, briefing and making arrangements for any attendances of Mr Capaldi in relation to the proceedings such costs, if not agreed, to be assessed on the basis set out in the legal costs legislation as defined in section 3A of the Legal Profession Uniform Law Application Act 2014 (NSW); and 2. otherwise, each party pay its, his and her own costs of the proceedings before the Tribunal. 1. The respondents to pay the appellant's costs of the appeal on the ordinary basis. 2. In the event any party contends a different costs order should be made to that in Order 4, the following directions apply: 1. the party contending for a different costs order (costs applicant) is to file and serve any submissions within 7 days of the date of these orders; 2. the cost respondent is to file and serve any submissions in response 14 days after the date of these orders; 3. the costs applicant is to file and serve any submissions in reply 21 days after the date these orders; 4. Order 4 ceases to have any effect upon the cost applicant making any application in accordance with order 5(a); 5. the submissions are to include submissions as to power to award costs and whether an order should be made dispensing with a hearing of any cost application pursuant to s 50(2) of the NCAT Act.
I hereby certify that this is a true and accurate record of the reasons for decision of the New South Wales Civil and Administrative Tribunal.

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 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: 07 September 2017

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