Cubic Metre Pty Ltd v C & E Critharis Constructions Pty Ltd

Tribunal proceedings and decision

1. The parties agreed to have the Tribunal determine costs on the basis of their written submissions.
2. The Tribunal correctly identified the costs rule applicable in this case. Under Rule 38(2)(b) of the Civil and Administrative Tribunal Rules 2014 (NCAT Rules) the Tribunal may award costs if the amount claimed is over $30,000, even in the absence of special circumstances.
3. The Senior Member referred to the various submissions made by the parties on the costs issue and noted that the builder had not conceded on the jurisdictional questions. The appellant had submitted that, by withdrawing, the builder had "effectively capitulated" and it therefore should be awarded its costs.
4. After referring to the submissions, the Senior Member set out a passage from the Appeal Panel's decision in Spicer v Owners Corporation SP 64558 [2016] NSWCATAP 11 concerning the power to award costs when an application is withdrawn. He then went on to state: The current proceedings are similar at least to the extent that the applicant has not conceded that there was or may have been a jurisdictional issue … In those circumstances I do not make a finding that the applicant "effectively capitulated". It is also true in these proceedings that there was no hearing on the merits and indeed the parties had not even filed their evidence. Therefore it is not appropriate for the Tribunal, in the absence of evidence, to attempt to make a finding that the original application could not be maintained for any reason.
5. This paragraph suggests that the Senior Member considered that the correct legal tests to be applied were either that one party had "effectively capitulated" or that "the original application could not be maintained for any reason". The Senior Member then decided that no order for costs would be made and that each party would pay their own costs. In light of that decision, the Senior Member was not required to consider the appellant's claim for costs on an indemnity basis.

The Appeal

1. The builder lodged the notice of appeal within the 28 day period established by r 25(4) of the NCAT Rules.
2. 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.
3. The grounds of appeal argued by the appellant raise questions of law.
4. As the costs order involved the exercise of a discretion given to the Tribunal under the NCAT Act, the appellant 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].
5. The grounds of appeal specified in the Notice of Appeal and clarified in submissions are: 1. The Tribunal erred in relying primarily on a decision involving the provisions of the Strata Schemes Management Act 1996 (SSMA) when that Act had specific provisions requiring an "investigation" before the power to award costs is enlivened, whereas the CAT Act contains no such requirement. This ground was characterised as an error of principle or taking into account irrelevant considerations. 2. The Tribunal erred by failing to have regard to the recent decision of the High Court in Burns v Corbett [2018] HCA 15 which would have had the effect of denying the Tribunal any jurisdiction in the matter, as the builder is domiciled in New South Wales and the appellant in the Australian Capital Territory. This ground is not pressed as it was not argued before the Tribunal. 3. The Tribunal erred in failing to exercise its discretion with respect to costs judicially by departing without justification from the generally accepted position, subject to considerations not relevant in this case, that a non-withdrawing party should receive an order that its costs thrown away be paid by the withdrawing party. 4. The Tribunal erred in failing to take into account relevant considerations, in particular: 1. that the provisions of 48J of the HB Act had not been complied with as there had been no investigation under Division 2 of that Act and the President of the Tribunal had not directed that the building claim be accepted without any such investigation having been made; and 2. the appellant drew the attention of the builder and the Tribunal to the jurisdictional issue on the statutory warranty claim from the outset and pressed its application for a further three months prior to the application being withdrawn. 1. In the alternative to ground (4), the Tribunal erred in failing to give reasons for the decision in consideration of the appellant's submissions referred to in grounds (4) (a) and 4(b) above. 2. The Tribunal erred in failing to give reasons with respect to the appellant's application for indemnity costs, which should have been given notwithstanding the Tribunal's decision, in the event the decision was appealed. 3. As a result of grounds (1) to (6) above, the decision of the Tribunal is not fair and equitable.
6. The appellant also submits that, as a result of grounds (1) to (6) above, the appellant has suffered a substantial miscarriage of justice in incurring substantial legal costs in responding appropriately to a claim for well in excess of $80,000 that was subsequently withdrawn by the builder without the consent of the appellant.
7. In the Reply to the Appeal the builder submitted that none of the grounds is made out and questioned whether leave should have been sought to appeal in relation to ground (7) and the ground of whether the appellant has suffered a substantial miscarriage of justice.

Consideration

1. The proceedings were heard in the Consumer and Commercial Division of the Tribunal and the amount claimed by the builder exceeded $30,000.00. As noted above the Senior Member correctly identified that Rule 38 of the NCAT Rules applied in the proceedings. The Tribunal has a discretion to award costs in the proceedings irrespective of whether there are "special circumstances".

The applicable principles

1. The usual principle in determining costs is that a successful party should be awarded costs in its favour (i.e. that costs "follow the event") and that the purpose of a costs order is to compensate or indemnify a successful party against the expenses to which it has been put: Latoudis v Casey (1990) 170 CLR 534; Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72.
2. However, as discussed by the Appeal Panel in Thomson v Chapman [2016] NSWCATAP 6 at [71], where there is a general discretion as to costs there is no absolute rule that, absent disentitling conduct, a successful party is to be compensated by the unsuccessful party, and nor is there any rule that a successful party might not be ordered to bear the costs of an unsuccessful party. In circumstances where there is a general discretion to award costs, the Tribunal in exercising its discretion is to have regard to the nature of the proceedings before it and all relevant factors arising in connection with those proceedings for the purpose of determining what order for costs, if any, should be made. Several factors are relevant including: whether by reason of the relative success of the parties on different issues and the time taken to determine those issues, an order for costs based on the issues determined should be made; and whether by reason of the nature of the proceedings the usual rule should otherwise be displaced in whole or in part.
3. The situation where a matter does not proceed to finality before the Tribunal and where an application is withdrawn raises particular issues. Neither the NCAT Act nor the NCAT Rules contains a specific provision dealing with costs when an applicant or appellant elects to discontinue proceedings. This is in contrast to the position under rule 42.19 of the Uniform Civil Procedure Rules 2005 that a respondent is ordinarily entitled to its costs incurred in relation to a claim where proceedings are discontinued.
4. The relevant principles applicable to a costs application in proceedings which have not been heard on the merits are set out by the High Court in Re Minister for Immigration and Ethnic Affairs: Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6. The High Court per McHugh J held: In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties … In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action … Moreover, 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… 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.
5. In Ibrahim v PERI Australia Pty Ltd [2013] NSWCA 328 the Court of Appeal set out the principles applicable to dealing with a costs application made when a dispute is finalised without there being a final adjudication on the merits. At [16]- [17], the then President of the Court of Appeal (with whom Leeming JA agreed) said: 16 The primary judge, in determining whether a costs order ought to be made in the applicant's favour, on the discontinuance, reviewed the case law including, relevantly, Australian Securities Commission v Aust-Home Investments Ltd [1993] FCA 585; 44 FCR 194; Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; 186 CLR 622; ONE.TEL Ltd v Deputy Commissioner of Taxation [2000] FCA 270; 101 FCR 548; Fordyce v Fordham [2006] NSWCA 274; 67 NSWLR 497; and Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2006] NSWCA 32. 17 Although each of those cases related to different facts, the principles that are to be derived from them, in circumstances where a Court is requested to make a costs order, when proceedings have not been heard to termination include the following: whether a party acted reasonably in commencing the proceedings; whether a party had been successful in obtaining interlocutory relief; whether the party sued had acted reasonably; whether the responding party had acted reasonably in defending the proceedings; whether the proceedings terminated after interlocutory relief had been granted; and further, whether the primary judge was satisfied that the party seeking to terminate the proceedings prior to a full hearing had almost a certain chance of success.
6. In Transfield Services (Australia) Pty Limited v James Gaha [2012] NSWSC 865 Ball J at [27] noted that one instance where the court may be satisfied that the principles in Lai Qin are satisfied is where the consent orders agreed by the parties' amount, in effect, to capitulation by one of the parties.
7. The appellant referred to several Tribunal and Appeal Panel cases where costs had been awarded to the respondent following withdrawal or discontinuance. For example, in Arambewela v Castle Projects Pty Ltd [2018] NSWCATAP 14 the Appeal Panel stated at [19]: Where an application or appeal is discontinued there is of course no "successful party". Nonetheless, I accept that in the ordinary course, absent some compelling reason, the discontinuing party should pay the costs of the discontinued proceedings.
8. In Solomons v Valley Motor Auctions Pty Ltd [2017] NSWCATAP 31 the Appeal Panel referred to several cases in the Supreme Court of NSW and noted that "where a plaintiff (or applicant) discontinues without the consent of the defendant, the latter is entitled to an order unless a court orders otherwise". As noted above, costs following discontinuance in the Supreme Court are expressly governed by rule 42.19 of the Uniform Civil Procedure Rules. In Solomons the Appeal Panel took the approach to the question of costs of withdrawn proceedings as set out in that rule. We note that the Uniform Civil Procedure Rules do not govern procedure in the Tribunal.
9. In Channell v Graham [2017] NSWCATAP 129 the Appeal Panel stated: The fact that the merits of the appeal have not been determined (because of the withdrawal and consequent dismissal) does not result in the appellant avoiding an order for costs of the appeal. The "event" is constituted by the dismissal. This view is consistent with that expressed in Solomons v Valley Motor Auctions Pty Ltd [2017] NSWCATAP 31.
10. It does not appear that that in those cases the Appeal Panel had been referred to the relevant principles set out by the High Court in Lai Qin when considering an application for costs in circumstances where there has been no hearing on the merits.

Did the Tribunal apply the correct legal principles?

1. As noted above, in his reasons for decision the Senior Member referred to the decision of the Appeal Panel in Spicer v Owners Corporation SP 64558 [2016] NSWCATAP 11 and drew parallels between that case and the present one before going on to conclude that there should be no order as to costs.
2. The appellant submits that no part of the factual or statutory mix in Spicer applied to the costs application. Furthermore, the appellant submits no principles of general application were established in Spicer that have any relevance to applications for costs under Rule 38.
3. The builder submits that the principle extracted from the Spicer case by the Senior Member was that in circumstances where there has been no evidence and no determination of any issues, the Tribunal must on its face accept an applicant's assertion that the substantive application had merit. The builder states that this is consistent with the applicable principles that one must look at the conduct of an applicant where proceedings are withdrawn in order to assess whether a costs order should be made.
4. Spicer was a matter that concerned the power of the Tribunal to award costs in matters under the SSMA. The SSMA only entitled the Tribunal to award costs where an application was dismissed and the Tribunal made a finding that "the application ... is frivolous, vexatious, misconceived or lacking in substance": see s 192(a) and The Owners Corporation of Strata Plan 4521 v Zouk [2007] NSWCA 23 at [38]. The Appeal Panel held that, as the application in Spicer had been withdrawn by the Owners Corporation prior to the hearing, the Tribunal was not permitted to "investigate" whether the proceedings were misconceived and had no power to make an order for costs under s 192 of the SSMA.
5. The Appeal Panel went on to consider, if it was wrong on the issue of the Tribunal's power under the SSMA to award costs when an application had been withdrawn, whether the proceedings were in fact misconceived. The Appeal Panel stated that misconception relates to the nature of the proceedings either by reference to them being in a form that is not permitted or seeking relief that could not be granted. In the full paragraph, a portion of which was quoted by the Senior Member, the Appeal Panel said at [157]: There are many reasons why parties decide to terminate an application by withdrawal or discontinuance. However, s 186 of the SSMA required an "investigation" before an order could be made to dismiss an application under s 185. This is a fundamental requirement to enliven the power to award costs. This did not occur. There was no concession that the proceedings were misconceived or that the claim was not reasonably arguable. The Tribunal did (sic) not evaluated all the evidence that was provided and because there was no investigation or hearing on the merits it was not open to the Tribunal to dismiss the proceedings as otherwise misconceived under s 185 in these circumstances.
6. It is clear that the Appeal Panel was referring to the relevant provision of the SSMA which was the Act that applied to the matter before it. The Appeal Panel was concerned with whether the application under that Act was misconceived. The SSMA, which has been repealed, had a particular costs regime which does not apply to the present matter which was an application before the Tribunal under the HB Act.
7. The Senior Member acknowledged that Spicer dealt with different legislative provisions from those applicable in this case. Contrary to the builder's submissions, he did not address the Lai Qin principles in his decision. The tests he applied appear to be that costs could be awarded if one party had "effectively capitulated" or that "the original application could not be maintained for any reason". These are not the correct tests in the context of a withdrawal of the application. As Ball J stated in Transfield Services (Australia) (as set out above) the relevant exceptions to the general rule that each party must pay their own costs when proceedings have not been determined on their merits are those two principles set out in Lai Qin: where one of the parties has acted so unreasonably that the other party should obtain the costs of the action; or, even though both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. Whether it can be said that one party has effectively capitulated is merely one instance where those principles may be satisfied.
8. In our view, by attempting to apply the facts or the conclusions reached in Spicer which were based on the specific provisions of the SSMA to this matter rather than the applicable law, the Senior Member applied an incorrect principle and that error pervaded the reasons for decision and the decision itself. For this reason, the appeal should be allowed and it is not necessary for us to consider the other grounds of appeal.

Should the Appeal Panel substitute its own decision?

1. 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 appellant submits that we should exercise that power and determine its application for costs in the Tribunal below. In its submissions, the builder appears to agree with that course.
2. This is not a matter which has had a complicated and lengthy history and where fresh evidence is required in order to make a determination on the issue. Both parties provided comprehensive submissions to the Tribunal on costs which have been supplemented by submissions in this appeal. In our view this is an appropriate matter in which to conduct a new hearing. The parties have indicated that the matter can and should be dealt with on the papers.

Should the appellant be awarded its costs of the withdrawn proceedings?

1. The issue is whether, in accordance with the principles set out in Lai Qin, the appellant should be awarded its costs of defending the case in the Tribunal which was ultimately withdrawn. As noted in Lai Qin, there may be circumstances where a costs order is appropriate even though there has been no hearing on the merits, bearing in mind, of course, that it is not appropriate for the determining body to decide a hypothetical case.
2. We must consider whether one party acted so unreasonably that the other party should obtain the costs of the action or whether, even though both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried.
3. It appears that the dispute between the parties had been on foot for some years with efforts made to reach a resolution before the builder commenced proceedings in the Tribunal on 23 November 2017. Shortly after the application was lodged with the Tribunal, the appellant made an offer of settlement to the builder which was rejected. A counter offer was made by the builder but it was not accepted and the appellant reinstated its earlier offer which was again rejected.
4. The appellant states that by the time the builder withdrew its claim, the builder had filed its points of claim and the appellant's points of defence had been drafted and engrossed as they were due to be filed a few days later in accordance with the Tribunal's directions. The appellant submits that the builder's conduct in pressing the application for some months in the face of the appellant's objections as to jurisdiction was unreasonable, particularly as the builder failed to provide evidence in support of its contention that the alleged defect is a major defect. Furthermore, because of the jurisdictional issues, the builder commenced and continued with the application without reasonable prospects of success. The appellant submits that it can be inferred from the withdrawal of the Tribunal proceedings and commencement of the Local Court proceedings on the same issue, that the builder withdrew for fear that the appellant's arguments on jurisdiction would be accepted. As we understand it, the appellant's submission is that this action confirms the builder was aware its action before the Tribunal had little prospect of success.
5. The builder states that, on the morning of the second directions hearing on 16 February 2018, in light of the jurisdictional issue concerning whether the work was a major defect, it proposed that, in order to avoid the expense of litigating that issue, the proceedings be transferred under item 6 of Schedule 4 to the NCAT Act to the Local Court where no such question would arise. Because the jurisdiction of the Tribunal over the dispute had not been established, such a transfer could only be made with the consent of the parties. The appellant advised the builder on 1 March 2018 that it did not consent. The builder submits it then withdrew at the earliest opportunity.
6. We should add that the builder does not concede the Tribunal lacked jurisdiction to deal with the application. The builder states that its decision to withdraw the application, in circumstances where the appellant did not consent to its transfer, was a reasonable decision taken by the builder to save both parties the significant additional costs that would have been incurred by each of them, including the cost of expert reports, if the issue of "major defect" had to be dealt with in evidence and determined by the Tribunal.
7. The practice of the Tribunal, as evidenced by the directions made on 16 February 2018 and confirmed in the submissions of the parties, is that the jurisdictional issue of whether the alleged defect is a major defect is dealt with at the same time as the substantive dispute. The builder was therefore faced with the task of obtaining expert evidence, not only as to the alleged defect itself, but on whether the defect is a major defect. This is clearly a more expensive exercise. In those circumstances, it was not unreasonable for the builder to seek to have the matter transferred to the Local Court where the jurisdictional issue would not have to be litigated. We therefore do not consider that the builder's action in withdrawing the Tribunal application (and filing in the Local Court) was unreasonable.
8. We might add that, given the amount claimed by the builder in the dispute, it could not be said that the builder's rejection of the settlement offer made by the appellant during the Tribunal proceedings was unreasonable. In our view, the builder acted reasonably and we now turn to the appellant's submission that the builder's claim had little prospect of success.
9. We do not consider that the builder's actions in pursuing the claim but subsequently withdrawing it were so unreasonable as to warrant an award of costs against it. The builder acted reasonably in commencing the proceedings following what appears to have been a protracted dispute.
10. We now turn to the appellant's submission that it was almost certain to succeed had the matter been fully tried.
11. While the builder was in error in indicating on the application form that it had attempted to resolve the dispute through NSW Fair Trading prior to lodgement with the Tribunal, that error could be cured through the Tribunal processes. Indeed, the matter proceeded despite that mistake. Similarly, while the builder sought to rely in its application on a breach of the subcontract even though it does appear that that claim was out of time, the fact that that claim was out of time was not a bar to the application proceeding in respect of the alleged breach of the statutory warranty.
12. The builder's claim for breach of the statutory warranty could only be maintained before the Tribunal if the alleged breach was a major defect. There was no determination of that issue and indeed no evidence had been filed in relation to it. It is not our role to speculate upon what might have been the outcome. In the circumstances, it is simply not possible for us to find that the appellant was almost certain to succeed.
13. The proper exercise of the discretion in this case is that there is no order as costs. Each party will therefore pay their own costs of and incidental to the Tribunal proceedings.

Costs of the appeal

1. The appellant has made an application for costs of the appeal. In light of the outcome of the appeal, it is appropriate to seek submissions on whether costs should be awarded and, if so, in whose favour.

Orders 1. Appeal allowed. 2. The appellant's application for costs in the proceedings HB 17/50093 is refused.

Directions for Costs: 1. The respondent is to notify the Appeal Panel and the appellant in writing if it makes an application for costs with evidence and submissions in support by 15 June 2019. 2. The appellant shall provide to the Appeal Panel and the respondent any written submissions in reply by 9 July 2019.

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. Registrar 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: 28 May 2019