CPD Holdings Pty Limited v Baguley - [2016] NSWCATAP 103 - NSWCATAP 2016 case summary — Zoe

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CPD Holdings Pty Limited v Baguley

[2016] NSWCATAP 103

NCAT Appeal Panel|2016-03-16

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Source facts

Court

NCAT Appeal Panel

Decision date

2016-03-16

Source

Original judgment source is linked above.

Judgment (17 paragraphs)

[1]

Overview

A builder has appealed from a costs decision in a home building dispute. The builder, CPD Holdings Pty Limited, and the homeowners, John and Daniella Baguley, had each brought proceedings against the other. The builder's claim settled on the afternoon of the second day of the hearing with the homeowners agreeing to pay the builder $24,818. The Tribunal determined the homeowners' claim in their favour for the amount of $34,598. That amount was set off against the amount of $24,818 that the homeowners agreed to pay to the builder. The net amount payable by the builder to the homeowners was $9,780.
The Tribunal ordered that each party pay their own costs in the builder's claim and that the builder pay the homeowners' costs in the homeowners' claim. The builder's primary submission on appeal is that each party should pay their own costs but that the homeowners should pay the builder's costs thrown away due to the adjournment of a two day hearing scheduled for 9 and 10 December 2013. Alternatively, the builder submitted that the homeowners should pay the costs in the builder's claim and the builder should pay the costs in the homeowners' claim apart from the costs thrown away by the adjournment which should be paid by the homeowners.
The three main grounds of appeal were that: 1. the Tribunal should have made one costs order in both proceedings, rather than two separate orders; 2. the Tribunal should not have rejected the builder's application that the homeowners should pay the costs thrown away as a result the adjournment of the hearing scheduled for 9 and 10 December 2013; 3. alternatively to ground 1, because the builder's case settled, the Tribunal should have applied the principles set out by the High Court in Minister for Immigration and Ethnic Affairs; Ex party Lai Qin (1977) 186 CLR 622 including the principle that if a party was almost certain to have succeeded if the matter had been determined, costs should be awarded in favour of that party.
We refuse leave for the builder to appeal on the first ground. There were two separate proceedings, one of which settled. Regardless of any preliminary view expressed by the Tribunal, the principles that apply when proceedings have settled are different from the principles that apply when proceedings are determined. The Tribunal was correct to deal with each costs application separately.

[5]

Application for costs in the homeowners' claim

The Tribunal concluded at [37], that neither party had conducted themselves in such a way so as to justify an award of costs. Both parties had failed to comply with directions and had failed to particularise the factual and legal basis for their claims until they were legally represented.
At [38] the Tribunal rejected the builder's submission in relation to an alleged "Calderbank offer" made by letter of 16 May 2014. The Tribunal also rejected the builder's submission that costs should be awarded because the homeowners refused other offers of settlement.
The Tribunal relied on the legal principle set out in Latoudis v Casey (1990) 170 CLR 534 at [3] (per McHugh J) (footnotes omitted): "An order for costs indemnifies the successful party in litigious proceedings in respect of liability for professional fees and out-of-pocket expenses reasonably incurred in connection with the litigation. The rationale of the order is that it is just and reasonable that the party has caused the other party to incur the costs of litigation should reimburse that party for the liability incurred. The order is not made to punish the unsuccessful party. Its function is a compensatory. Thus, in civil proceedings an order may, and usually will, be made even though the unsuccessful party has nearly succeeded or has acted reasonably in commencing the proceedings."
The Tribunal applied this principle at [43] concluding that: "In this case it was necessary for the homeowners to pursue by litigation the award of $34,598 for which they were ultimately successful. It is reasonable that they now be compensated for the costs incurred in that litigation."
The Tribunal awarded costs in favour of the homeowners because: 1. the homeowners were ultimately successful on a substantial part of the claim ($34,598 compared with the initial claim of over $75,000); and 2. the builder did not offer to settle the matter by payment to them of $34,598 or more.
At [45] the Tribunal rejected the builder's claim that the homeowners should pay the costs thrown away as a result of the abandonment of the hearing scheduled for 9 and 10 December 2013. The Tribunal concluded that the adjournment was to enable the homeowners to file a new expert report. That was said to be necessary because of the builder's failure to file its expert evidence on time.
At [53] the Tribunal also ordered costs in relation to a directions hearing conducted on 1 July 2014.

[8]

Leave to appeal on grounds other than questions of law

In appeals from decisions of the Consumer and Commercial Division, leave to appeal on grounds other than questions of law can only be granted in the limited circumstances set out in Schedule 4, cl 12(1) to the NCAT Act, which provides as follows: "(1) An Appeal Panel may grant leave under section 80 (2) (b) of this Act for an internal appeal against a Division decision only if the Appeal Panel is satisfied the appellant may have suffered a substantial miscarriage of justice because: (a) the decision of the Tribunal under appeal was not fair and equitable , or (b) the decision of the Tribunal under appeal was against the weight of evidence, or (c) significant new evidence has arisen (being evidence that was not reasonably available at the time the proceedings under appeal were being dealt with)."
The meaning of "substantial miscarriage of justice" was summarised by the Appeal Panel in Collins v Urban [2014] NSWCATAP 17 at [71] and [79]. The Appeal Panel stated (at [71]) that the concept of a substantial miscarriage of justice refers to a failure in the way a matter was conducted or decided which deprived the appellant of a chance that was fairly open of achieving a better outcome than occurred. The Appeal Panel also stated (at [79]) that in order to show that a party may have been deprived of a "significant possibility" or a "chance which was fairly open" of achieving a different and more favourable result it would generally be necessary for the party to explain what its case would have been and show that it was fairly arguable. If the party failed to do this, even if there has been a denial of procedural fairness, the Appeal Panel may conclude that it is not satisfied that any substantial miscarriage of justice may have occurred.
Where leave to appeal is required, the general principles to be applied in determining whether or not leave to appeal should be granted were set out in Collins v Urban at [84] as follows: "(1) In order to be granted leave to appeal, the applicant must demonstrate something more than that the primary decision maker was arguably wrong in the conclusion arrived at or that there was a bona fide challenge to an issue of fact: BHP Billiton Ltd v Dunning [2013] NSWCA 421 at [19] and the authorities cited there, Nakad v Commissioner of Police, NSW Police Force [2014] NSWCATAP 10 at [45]; (2) Ordinarily it is appropriate to grant leave to appeal only in matters that involve: (a) issues of principle; (b) questions of public importance or matters of administration or policy which might have general application; or (c) an injustice which is reasonably clear, in the sense of going beyond merely what is arguable, or an error that is plain and readily apparent which is central to the Tribunal's decision and not merely peripheral, so that it would be unjust to allow the finding to stand; (d) a factual error that was unreasonably arrived at and clearly mistaken; or (e) the Tribunal having gone about the fact finding process in such an unorthodox manner or in such a way that it was likely to produce an unfair result so that it would be in the interests of justice for it to be reviewed."

[9]

Costs orders 1 and 2 are not fair and equitable

The builder framed its grounds of appeal and submissions as applying to both the first order, that the builder pays the homeowners' costs from 19 September 2013 in the homeowners' claim, and the second order, that each party pay that party's own costs in the builder's claim.
At [114] and [115] of the principal decision (CPD Holdings Pty Ltd t/as The Bathroom Exchange v John Baguley and Daniela Baguley (HB 13/20778) and John Baguley and Daniela Baguley v CPD Holdings Pty Ltd t/as The Bathroom Exchange (HB 13/27768), unreported, 11 July 2013), the Tribunal set out its preliminary view that, because both parties had had some success with their respective applications, each party should pay their own costs. "In an attempt to avoid the parties being involved in further disputation in regard to costs I have expressed below a preliminary view of how the issue should be resolved. If there are matters of which I am unaware that prevents resolution I have made directions to allow further ventilation of the issue. Both parties have had some success with their respective applications. However, the two day hearing on 9 and 10 December 2013 was adjourned because of the owners' election to rely on different expert evidence. It would therefore appear to be appropriate that the owners' pay the builder's costs thrown away due to that adjournment. Otherwise, it would be my preliminary view that each party should pay their own costs."
It transpired that the parties did not settle the costs issue and a hearing then took place. The builder's submissions on costs addressed costs generally and did not differentiate between the two matters. That is because it was the builder's impression that the Tribunal had expressed a preliminary view that there would only be one costs order. If the builder had that impression it was not justified on the basis of the passage quoted above. The only preliminary view the Tribunal expressed was that each party should pay their own costs and that the homeowners should pay the builder's costs thrown away due to the adjournment.
At the costs hearing, the Tribunal asked the homeowners' solicitor whether it would be feasible to determine the costs in relation to the homeowners' application and to isolate that from the costs associated with the preparation of the builder's application. The homeowners' solicitor said that it would be unfair to the builder to deal with the costs of each application separately. That was said to be the case because the decision to settle the builder's case was made late on the second day of the hearing without any regard to costs. The homeowners' solicitor went on to say that because the matter was dealt with as two applications together in the one hearing, the costs application should be dealt with on the same basis.
The builder interpreted these statements to be a concession by the homeowner that there should only be one order for costs in relation to both proceedings. The builder submitted that at no stage during the costs hearing did the Tribunal indicate to the parties that it was his intention to depart from his previous view that there should be just one costs order. Because of the ramifications of this fundamental change, it was submitted that procedural fairness required that the builder be informed of the Tribunal's changed position and be given the opportunity to obtain legal advice and make submissions on that issue.

[10]

Consideration

The Tribunal is subject to the rules of procedural fairness: Consumer, Trader and Tenancy Tribunal Act 2001 (NSW) (repealed), (repealed), s 28(2). Departure from the way in which the parties conduct their cases, without giving them an opportunity to make submissions about this, may amount to a breach of procedural fairness. In Pantorno v R (1989) 166 CLR 466, Mason CJ and Brennan J said at 473: "When the parties to an adversarial proceeding agree on a proposition of law and conduct their cases on that basis, their agreement does not bind the trial judge. If the judge determines the law to be different, he may apply the law as he determines it to be, but he must inform the parties of the view he has formed when that is necessary to give them an opportunity to address new issues arising from the judge's departure from the proposition of law on which the case was conducted. Otherwise both parties are taken by surprise: see Fairmount Ltd v Environment Secretary [1976] 1 WLR 1255 at 1265-1266."
In Seltsam Pty Limited v Ghaleb [2005] NSWCA 208 at [78], after referring to this passage and other relevant case law, Ipp JA referred to "the general principle that although the basis on which the parties conduct a trial does not bind the judge, if the judge contemplates determining the case on a different basis he or she must inform the parties of this prospect so that they have an opportunity to address any new or changed issues that may arise".
At the hearing on costs the Tribunal asked the homeowners' solicitor whether it would be feasible to determine the costs in relation to the homeowners' application and to isolate that from the costs associated with the preparation of the builder's application. The question was not whether the Tribunal was legally bound to treat the costs applications in a particular way. The homeowners' submission was that it would be unfair to do so. The Tribunal ultimately rejected that view.
This is not a case where the parties agreed on a proposition of law and the Tribunal departed from that proposition without giving the parties an opportunity to address any new issues. The relevant proposition of law was that the Tribunal may award costs in relation to the proceedings in such circumstances as it thinks fit. No party ever submitted that the Tribunal must, as a matter of law, determine the applications in each proceeding together.
The Tribunal did not breach the rules of procedural fairness in this case. It invited the parties' to make submissions on a particular issue and, although the parties agreed as to the approach the Tribunal should take, it ultimately decided to take a different approach.
The builder relied on an unreported decision of Li v MACD Developing Pty Ltd (Civil and Administrative Tribunal, unreported, 27 May 2015). In that case, the Member stated at [14] and [15], that: "The builder has submitted that the Tribunal should hear its costs applications in the owners' proceedings and in the cross application together. I am satisfied that it is appropriate to hear the two costs applications as one because the proceedings were heard together and it is difficult if not impossible to identify the time that was taken up with evidence on the owners' proceedings as opposed to time that was taken up with evidence on the cross application. The net outcome of the two sets of proceedings was that the builder recovered $23,856.86 ($32,299.90 - $8,443.04 = $23,856.86)."
It is not necessary to determine the correctness of this approach because the facts in these proceedings are materially different. In this case the builder's claim settled with no agreement as to costs while the homeowners' claim was determined by the Tribunal. As is clear from the High Court's decision in Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1977) 186 CLR 622, the legal principles that apply to an application for costs when proceedings are settled are different from those that apply following a contested hearing. The Tribunal in this case would have fallen into error if it had applied the same principles to both proceedings.
The Tribunal did not breach the rules of procedural fairness and there is no other basis for granting leave to appeal on this ground.

[13]

Submissions

The Tribunal's findings at [45] and [46] are said by the builder to be perverse and not fair and equitable for nine reasons which can be summarised as follows: 1. the Tribunal assumed incorrectly that the builder's expert evidence was served two weeks late when it was only served one week late; and 2. the real need for the adjournment arose not because the evidence was served late but because the homeowners served new expert evidence in chief on the builder on the day of the hearing. They did so because they were unable to reach commercially acceptable arrangements with the previous expert.
The homeowners agree that their second expert report, the Cass report, was received 7 days after the due date for service.
The builder submitted that the homeowners originally provided an expert report from Mr Grieve in respect of defects as part of their case in chief. On 19 September 2013, the matters were adjourned for a two-day hearing on 9 and 10 December 2013. The Tribunal directed that the builder provide an expert report in reply to the Grieve report by 30 October 2013 and leave was given to the owners to provide short evidence in reply by 29 November 2013.
The builders filed an expert report from Mr Cass on 6 November 2013. The owners received that report on 7 November 2013. The evidence was filed one week late. The builder submitted that it would have been reasonable to extend the date for compliance by the owners by one week to 6 December 2013 if an extension was requested. According to the builder, the owners did not request an extension. The owners did not provide evidence in reply in compliance with the Tribunal's order by 19 September 2013.
On the morning of the hearing on 9 December 2013, the owners did not appear with Mr Grieve. Instead they appeared with another expert, Mr Stanton. The homeowners' solicitor advised the Tribunal that Mr Stanton had replaced Mr Grieve and that the homeowners no longer relied on the Grieve report. Mr Stanton's report and Scott Schedule were filed and served at that time. The Tribunal was also informed that Mr Grieve was not available for cross-examination. The builder's solicitor objected to the Stanton report on the basis that it was not evidence in reply to the Cass report, but rather new evidence in chief.
The Tribunal said that it would admit the Stanton report and adjourn the proceedings to give the builder the opportunity to respond to that report. In relation to costs, the Member said: "It's looking as though we could adjourn the matter today. Mr and Mrs Baguley would finish up paying the cost of that adjournment because of the late provision of documentation, failing to comply with the Tribunal's directions."
The solicitor for the homeowners submitted that the reason for the adjournment was the late provision of evidence by the builder but the Tribunal rejected that submission at p 13 of the 9 December 2013 transcript: "Except that the (Stanton) report replaces the (Grieve) report that you're now no longer relying upon. It's your evidence in chief; instead of being your short evidence in reply it's evidence in chief, and would inevitably require a response from Mr Cass."
The Tribunal then made the following directions: 1. The Tribunal notes the homeowners no longer rely on the report of Mr Grieve but rely on the report of Mr Stanton handed up at the hearing on 9 December 2013; 2. The costs thrown away due to this adjournment are reserved.
At [10] of the principal decision the Tribunal noted: "The matters were again adjourned for the builder's expert to consider the Stanton report. The issue of costs was reserved."
At [115] of the principal decision the Tribunal expressed the preliminary view that: "However, the two-day hearing on 9 and 10 December 2013 was adjourned because of the owners' election to rely on different expert evidence. It would therefore appear to be appropriate that the owners pay the bills as costs thrown away due to that adjournment."
In the homeowners' submissions on costs, the following admission was made at [25]: "Anthony Grieve was the owners' expert. The owners were unable to reach commercially acceptable arrangements for Mr Grieve to prepare his report in reply to Mr Cass's report. Accordingly, Mr Stanton was instructed to prepare a report in reply."
According to the builder, the second statement is incorrect because the report was not a report in reply. It was new evidence in chief to which the builder was entitled to have his expert respond.
At [26] of the homeowners' submission on costs it was stated that: "Due to Mr Stanton's previous commitments he was unable to provide his report by 29 November 2013 and accordingly the owners failed to comply with this order."
At the costs hearing on 10 June 2015 the homeowners' solicitor told the Tribunal that they did not resile from their written submissions or seek to change them. However, according to the builder, the homeowners' solicitor then proceeded to contradict his written submissions because: 1. contrary to what was said at [23] of the written submissions, the homeowners' solicitor said that the Cass report was lodged two weeks late on 14 November 2013, instead of one week late on 7 November 2013; 2. contrary to what was said at [25] of the written submissions, the homeowners' solicitor stated the following: "I'm not going to go into the reasons why Mr Grieve was unable, but he was unable to provide his report." 3. contrary to what was said at [25] of the written submissions, the homeowners' solicitor attempted to suggest again that the late service of the Cass report was the cause of the hearing date being vacated rather than the fact that the homeowners had been unable to reach commercially acceptable arrangements with Mr Grieve.

[15]

Application of the principles in Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin

The builder made the point in its original written submissions that McHugh J in Ex parte Lai Qin held that, when proceedings are settled, "in some cases a judge may feel confident that although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried." The builder also noted that the Tribunal found at [50] that: "It was clear from an early stage that the builder had a legitimate claim for payment. So much was made clear to the parties at a directions hearing on 1 August 2013."
Having considered those submissions when determining the appeal on the papers, we invited the parties to make short written submissions on the following questions: 1. did the Tribunal make an error of law in failing to consider, in accordance with the principles in Re Minister for Immigration and Ethnic Affairs (Cth); Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at [7] and [8], whether the builder was almost certain to have succeeded in his claim if the matter had been fully tried? 2. if so, should the Appeal Panel consider that question? 3. if so, how should the Appeal Panel answer that question given the Tribunal's finding that the builder had a legitimate claim for payment?
The Appeal Panel conducted a short hearing focusing on these questions on 16 March 2016 and directed the parties to file and serve submissions.
Despite attempting to distinguish the decision in Ex parte Lai Qin in its original written submissions, the builder submitted, in supplementary submissions, that the Tribunal had erred by not applying the principles in that case.
The homeowners submitted that the Tribunal had not made an error of law because it is not certain that the builder would have succeeded in its claim if the matter had been fully tried. The Tribunal was not required to make any findings of fact in regard to the builder's application or determine when, and in what circumstances the contract was terminated. According to the homeowners, those circumstances make it unlikely that the Tribunal could determine that the builder would almost certainly have succeeded in its application. The homeowners also emphasised McHugh J's comment, not included in the Tribunal's quote from the decision (at [20] above), that "...such cases are likely to be rare."
The Tribunal may award costs in relation to the proceedings in such circumstances as it thinks fit (Consumer, Trader and Tenancy Tribunal Act, s 53(2) and (3)(a); Consumer, Trader and Tenancy Tribunal Regulation, cl 20(4)). In Wright v Foresight Constructions [2011] NSWCA 327, the Court of Appeal said of the CTTT's costs power: "A power conferred in these terms is 'unfettered' in the sense that the Tribunal may make such order as it thinks appropriate, so long as it acts in accordance with the subject matter, scope and purpose of the power. In relation to the award of costs in litigation, the accepted purpose is, where costs are awarded in favour of one party, to compensate that party for the expense incurred in respect of the litigation."
A costs discretion must not only be exercised judicially but in accordance with general legal principles. In Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178, Mason CJ and Deane J said at 192: "The wide jurisdiction conferred by the (costs) rule "must be exercised judicially and in accordance with general legal principles pertaining to the law of costs", to take up the words of Lambert 1.A. in Oasis Hotel Ltd. v. Zurich Insurance Co." (Word in brackets added and footnotes omitted.)
The power to award costs when proceedings have settled is also unfettered but must be exercised judicially and in accordance with general legal principles pertaining to the law of costs.
The exercise of a judicial discretion, such as the discretion to award costs, is appellable according to the criteria set out in House v R (1936) 55 CLR 499 at 505: "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."
The Tribunal correctly identified the legal principles set out by the High Court in Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1977) 186 CLR 622 but acted on a wrong principle or did not act on all the correct principles pertaining to the law of costs. It considered whether it could be concluded that one of the parties had acted so unreasonably that the other party should obtain the costs of the action. But despite finding that the builder had a legitimate claim for payment, the Tribunal failed to consider whether costs should be awarded on the basis that one party was almost certain to have succeeded if the matter had been fully tried.
The next question posed by the Appeal Panel was whether we should consider that question and, in effect, re-exercise the costs discretion. The builder said that we should do so. The homeowners disagreed.
The Appeal Panel has the power to decide to deal with an internal appeal by way of a new hearing if it considers that the grounds for the appeal warrant a new hearing: NCAT Act, s 80(3). The Panel also has power to permit fresh evidence if it considers it appropriate in the circumstances: NCAT Act, s 80(3). This is a matter which has a lengthy history and if it were appropriate for the Appeal Panel to conduct a new hearing on this question we would do so. Unfortunately it is not.
The question that needs to be determined is whether the homeowners should be ordered to pay the costs in the builder's claim on the basis that the builder was almost certain to have succeeded if the matter had been fully tried. While the Tribunal expressed the view that "It was clear from an early stage that the builder had a legitimate claim for payment", it did not direct its mind to this question.
The Appeal Panel could read transcript and accept fresh evidence on this issue, but the Member who heard the substantive case up to the time when it settled and who expressed the view that the builder had a legitimate claim, is in a better position than the Appeal Panel to re-exercise that discretion. We anticipate that that can be done without further submissions or evidence from the parties, but that is a matter for the Tribunal below.

CPD Holdings Pty Limited v Baguley

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