Bulloch v Linden Building Services Pty Ltd t/as Linden Constructions

The Appeal

1. 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.
2. 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].
3. 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.
4. 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.

Conclusion

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.

Consideration

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. We therefore dismiss the appeal.

Costs

1. 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.

Orders 1. The appeal is dismissed. 2. The appellant is to pay the respondent's costs of the appeal as agreed or assessed.

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: 15 February 2019