This is an appeal against a costs decision made in the Consumer and Commercial Division of the Tribunal on 20 September 2018.
[2]
Background
Mr and Mrs Bulloch (the homeowners) entered into a contract with Linden Building Services Pty Ltd t/as Linden Constructions (the builder) in September 2011 for the construction of a new home at Wentworth Falls. Construction was completed in about August 2012 and Mr and Mrs Gregory took possession of the property. In about January 2013 Mr and Mrs Gregory observed some problems with some tile grouting and cracking in a garage pillar. The builder returned to the property in March 2013 to rectify these defects.
The homeowners state that between March 2013 and September 2016 a number of other defects came to their attention. On 13 July 2017 they applied to the Tribunal for an order under the Home Building Act 1989 (the HB Act) that the builder rectify the works. The total amount claimed by the homeowners was $139,589. Consent orders were made by the Tribunal on 9 August 2018 for the builder to carry out certain works following an agreement having been reached by the parties on a "without admission of liability" basis. The agreement between the parties was made with reference to rectification works identified in a Record of Conclave - Joint Scott Schedule as a result of an expert conclave held on 8 March 2018 and an attached report by an engineer, Mr Stubbs.
Both parties sought an order for costs. Written submissions were provided by the parties and on 20 September 2018 the Senior Member made an order on the papers that the application by both parties for a costs order be dismissed.
The Senior Member, relying on established authority, concluded that an award of costs could be made in the absence of a hearing on the merits. As the amount claimed in the proceedings was in excess of $30,000, the Senior Member also concluded that an award of costs could be made in the absence of special circumstances in accordance with s 60 of the NCAT Act and r 38 of the Civil and Administrative Tribunal Rules 2014 (NCAT Rules) and that common law principles applied in making a discretionary costs order.
The Senior Member referred to Re Minister for Immigration and Ethnic Affairs: Ex Parte Lai Qin (1997) 186 CLR 622 and Oz Cut Concreting Services v Shirlaw [2001] NSWSC 686 and noted that, while an order for costs may be made even if there has been no hearing on the merits, the legal principles to be applied are different to those following a contested hearing. The Senior Member then set out the two circumstances in which an order for costs may be made when there has been no hearing on the merits as identified by McHugh J in Lai Qin. Those principles are:
1. whether one party acted so unreasonably that the other party should obtain the costs of the action; and
2. whether one party was almost certain to have succeeded if the matter had been fully tried.
The Senior Member concluded that neither party acted so unreasonably that the other party should obtain costs. He also concluded that, without taking evidence, it was impossible for the Tribunal to say whether either party would have had substantial success if the matter had gone to hearing. As a result, he dismissed the costs applications.
[3]
The Appeal
The homeowners lodged the notice of appeal on 15 October 2018. A decision concerning the award of costs is an ancillary decision as defined in s 4 of the NCAT Act, and an internal appeal may be made as of right on a question of law, and otherwise with leave of the Appeal Panel: s 80(2) NCAT Act. It is well settled that an internal appeal lies to the Appeal Panel from a costs decision: Antonio v Cubitt's Classic Homes Improvements Pty Limited [2016] NSWCATAP 37.
As the costs order involved the exercise of a discretion given to the Tribunal under s 60 of the NCAT Act, the homeowners must demonstrate an error in the House v The King sense. Such an error may be demonstrated if the Tribunal acted on a wrong principle, made a material error of fact, failed to have regard to material considerations or reached a conclusion which was, on the facts, "unreasonable or plainly unjust": House v The King [1936] HCA 40; 55 CLR 499 at 505; Micallef v ICI Australia Operations Pty Ltd [2001] NSWCA 274 at [45].
The homeowners rely on the following grounds of appeal:
1. That the Senior Member erred in finding it was beyond the Tribunal's expertise to determine the exact scope or likely value of the agreed rectification work.
2. That the Senior Member erred in concluding that without taking evidence it was impossible for the Tribunal to say whether either party would have had substantial success if the matter had gone to hearing.
3. That the Senior Member should have found that the builder had consented to the works as required as a result of the Joint Expert Conclave Report.
The homeowners contend that that the above errors constituted a misapplication of the Tribunal's discretion to award costs. It is agreed that the grounds of appeal argued by the homeowners raise questions of law.
[4]
Conclusion
In essence, the homeowners argue that the Senior Member misapplied the second principle in Lai Qin, that is, whether one party was almost certain to have succeeded if the matter had been fully tried. They submit that the actions of the builder in consenting to a work order enlivened the issue of costs. They state the exact scope and likely agreed rectification work is identified in the Record of Conclave - Joint Scott Schedule which formed part of the consent orders and was evidence readily available to the Senior Member. A report by an engineer, Mr Stubbs, was annexed to the Record of Conclave and the parties' experts agreed that his recommendations would be followed in respect of some structural issues identified in item 15 of the Scott Schedule. The homeowners state that the works to be done by the builder were substantial, requiring the supervision of an engineer.
The homeowners submit that the work the builder consented to carry out was substantially the same claim made by them in their home building claim.
The homeowners submit that, as the Report of Conclave and the report by Mr Stubbs were part of the consent orders and had been agreed between the parties' experts, the Senior Member had sufficient evidence before him to conclude that the homeowners would almost certainly have succeeded if the matter had gone to hearing. Accordingly, the Senior Member erred in finding that it was beyond the Tribunal's expertise to determine the exact scope and likely value of the agreed rectification work and that further evidence would be required to conclude whether either party would have had substantial success if the matter had proceeded to hearing.
The builder submits that the terms of settlement are not evidence of the possible outcome if the matter was heard and notes that it is quite normal for parties to compromise their position to reach a settlement. The builder states that the consent orders were made without admission of liability and the report by Mr Stubbs, who was an engineer engaged by the homeowners, was put in place as a compromise position in order to settle the matter. The builder states it objected to Mr Stubb's report and would have pressed that issue if the matter had gone to hearing. The builder notes that no evidence was formally tendered during the Tribunal proceedings.
The builder submits that, in these circumstances, the expert evidence could not be tested and the Senior Member was correct to find that he could not conclude whether either party would have had substantial success if the matter proceeded to hearing.
[5]
Consideration
In Lai Qin, McHugh J noted that in cases that have been settled an award of costs is likely to be rare. He stated that, if it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. The Senior Member found that neither party acted so unreasonably so as to justify an award of costs and the homeowners do not cavil with that conclusion.
In this case reliance is placed upon the consent orders as evidence that the homeowners were "almost certain to have succeeded" if the matter had gone to hearing. The fact that the consent orders reflect a position agreed by the parties' experts at a conclave that certain items were defective and the builder was liable for those defects, is said by the homeowners to be evidence, indeed, expert evidence, that the homeowners would have substantially succeeded at the hearing.
Both parties referred to the decision of the Tribunal in Gregory v Sunrise Pools Australia Pty Ltd (HB 17/03938, unreported) in which the Tribunal had made an order for costs in favour of the homeowner where proceedings had settled. That decision was upheld by the Appeal Panel in Sunrise Pools Australia Pty Ltd v Gregory [2018] NSWCATAP 232. The homeowners sought to rely on the decision as being analogous to this case. The builder, for its part, submitted that the case was wrongly decided.
In our view, the factual circumstances in the Gregory matter were very different to those that were before the Senior Member in this case. In Gregory the defective work concerned one item and the only expert evidence before the Tribunal was that the work was defective. The builder had not provided expert evidence to the contrary. The Appeal Panel found, in those circumstances, the Tribunal had not erred in its application of the principles in Lai Qin.
In this case it is apparent from the Senior Member's reasons that, on the basis of the material before him, he was not satisfied, however, without hearing evidence, that the homeowners would be almost certain to succeed. We agree with the builder that the mere fact consent orders are entered into is insufficient to establish that one party would be almost certain to succeed if the matter went to hearing. While there may be circumstances, as in the Gregory matter, where that outcome may have been inevitable, as McHugh J stated, those cases are rare.
The fact that the consent orders contain an agreed scope of works does not, in our view, indicate that the Senior Member was bound to accept that, had the matter proceeded to hearing, matters would not have been contested and a similar outcome would have been reached. It was, of course, not permissible for the Senior Member to try a hypothetical action between the parties.
We can see no error in the way the Senior Member exercised his discretion and are not satisfied that the appellant has demonstrated any error of law on the part of the Tribunal.
We therefore dismiss the appeal.
[6]
Costs
The respondent has sought its costs of the appeal. The applicable costs rule at first instance was r 38 of the NCAT Rules, and there was no dispute that accordingly r 38A of the NCAT Rules applies to the appeal. The appeal is dismissed and the respondent is entitled to its costs of the appeal.
[7]
Orders
1. The appeal is dismissed.
2. The appellant is to pay the respondent's costs of the appeal as agreed or assessed.
[8]
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
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Decision last updated: 15 February 2019
Parties
Applicant/Plaintiff:
Bulloch
Respondent/Defendant:
Linden Building Services Pty Ltd t/as Linden Constructions