Deacon v National Strategic Constructions Pty Ltd; National Strategic Constructions Pty Ltd v Deacon

NCAT Appeal Panel|2018-01-31

Introduction

This is an application for costs made by Paul and Emilie Deacon against National Strategic Constructions Pty Ltd, arising from internal appeals under s 80(1) of the Civil and Administrative Tribunal Act 2013 (the NCAT Act) in respect of proceedings HB 14/59078 and HB 15/61471. In our reasons for decision, Paul and Emilie Deacon are referred to as "the homeowners" and National Strategic Constructions Pty Ltd is referred to as "the builder".
In the substantive proceedings, the homeowners were successful in only one of their grounds of appeal, which concerned the assessment of damages in respect of defective work involving a floor slab. The builder's appeal, which was pressed on seven grounds, was wholly unsuccessful.
On 7 September 2017 we made the following orders: In AP 16/52241: 1. The appeal is allowed in part. 2. Order 1 of the Tribunal dated 28 October 2016 is varied as follows: "The builder is to pay the homeowners the sum of $95,754.00 immediately". 3. The appeal is otherwise dismissed. In AP 16/53370: 4. Time for National Strategic Construction Pty Ltd to lodge the appeal is extended to 7 December 2016. 5. Leave to appeal is refused. 6. The appeal is dismissed. In both applications: 7. Any application for costs is to be made in writing to the Tribunal (with a copy sent to the other party) within 14 days of the date of publication of these reasons for decision and is to be accompanied by a submission not exceeding three pages in length. 8. Any submission in response to the costs application is not to exceed three pages in length and is to be provided to the Tribunal and the other party within 14 days of receipt of the costs application. 9. Any submission in reply is to be provided to the Tribunal within seven days thereafter. 10. In their submissions on costs, the parties are to address whether the issue of costs can be determined without a hearing, on the basis of the written submissions.

Costs application and submissions

The homeowners applied for costs on 21 September 2017. They relevantly submit that:

They should be awarded costs because they were successful in the primary ground of appeal (Ground 1) and the builder was wholly unsuccessful in seven grounds of appeal.
The fact that Ground 1 was the dominant issue they raised in the appeal proceedings is evidenced by a settlement offer made to the builder's solicitors on 16 November 2016, in which they offered to waive all other grounds of appeal if the builder agreed to vary the orders made by the Tribunal at first instance.
The reasoning and quantum set out in their settlement offer are identical to the reasoning and amounts ordered by the Appeal Panel.
Had the builder accepted the offer, both parties would have avoided the time and costs involved in the appeal proceedings.
The homeowners' offer expressly stated that if the offer was not accepted, the homeowners would file an appeal and rely on the offer in support of an application for the builder to pay their costs of the appeal.
The offer was in the nature of a Calderbank offer.
The builder rejected the offer on 21 November 2016.
The homeowners' offer was a genuine offer of compromise and the builder's rejection of the offer was unreasonable.
In those circumstances, the builder should pay the homeowners' costs on an indemnity basis.

Settlement offer

The homeowners provided a copy of the letter dated 16 November 2016, which was written after receipt of the reasons for decision of the Tribunal below on 31 October 2016.
The letter advises that the Tribunal's decision is liable to be appealed on a number of grounds, namely the Tribunal's findings in relation to:

floor slab defects;
accommodation costs;
miscellaneous undetermined items; and
the builder's cross-application.

The settlement offer is set out at [19] to [21] of the letter, and states: 19. To avoid the time and costs to both parties in an appeal of the Reasons and Orders, our clients hereby offer for all parties to apply for a variation of the Reasons and Orders by consent on the following basis: All parties apply to vary the Reasons and Orders by consent pursuant to Regulation 9(1) of the Civil and Administrative Tribunal Regulation 2013 to correct the error relating to Item 46, with the effect that: The amount of $79,006.79 (including margin and GST) is payable by your client with respect to Item 46. The amount of $129,770.10 is payable by your client with respect to the Claim; Our client will waive any entitlement to appeal the remaining errors identified above; Taking into account the $34,016.10 payable by our clients with the respect to [sic] the Cross Claim, the total amount payable by your client in both proceedings is $95,754.00; The parties be allowed to make costs submissions following variation of the Orders. 20. Having regard to the timeframe for our clients to file and serve a Notice of Appeal, the above offer is open to be accepted until 5.00 pm on 23 November 2016. 21. In the event that the above offer is not accepted, we are instructed to file and serve a Notice of Appeal in relation to all of the errors referred to above. If that action is necessary, we will rely upon this offer in support of an application that your client pay our client's costs of the appeal.

Builder's submissions

The builder's submission was filed on 27 September 2017. The builder relevantly submits that:

The homeowners need to establish special circumstances warranting an order for costs under s 60 of the NCAT Act.
The homeowners have failed to identify any grounds for special circumstances under s 60(3) of the NCAT Act.
The appropriate order is that the parties pay their own costs.

Homeowners' submissions in reply

In a submission in reply received on 9 October 2017, the homeowners relevantly submit that special circumstances do not need to be established as cl 38 of the Civil and Administrative Tribunal Rules 2014 (the Rules) must be applied to the costs of appeal, in accordance with cl 38A.

Costs under NCAT legislation

The general rule in relation to costs in the Tribunal is that unless special circumstances are established, the parties pay their own costs: s 60(1) of the NCAT Act.
However, cl 38 of the Rules modifies the application of s 60 in proceedings before the Consumer and Commercial Division of the Tribunal. Clause 38(2)(a) provides that in proceedings where the amount claimed or in dispute is more than $30,000, the Tribunal may award costs in the absence of special circumstances.
In this matter, the proceedings at first instance were brought under the Home Building Act 1989. Pursuant to section 3 of Schedule 4 of the Act, proceedings under the Home Building Act are allocated to the Commercial and Consumer Division of the Tribunal. The amount claimed by the parties in both proceedings at first instance exceeded $30,000. Therefore, cl 38 is the costs provision relevant to the Tribunal proceedings.
In relation to costs of the appeal proceedings, cl 38A of the Rules 2014 states: 38A Costs in internal appeals (1) This rule applies to an internal appeal lodged on or after 1 January 2016 if the provisions that applied to the determination of costs in the proceedings of the Tribunal at first instance (the first instance costs provisions) differed from those set out in section 60 of the Act because of the operation of: (a) enabling legislation, or (b) the Division Schedule for the Division of the Tribunal concerned, or (c) the procedural rules. (2) Despite section 60 of the Act, the Appeal Panel for an internal appeal to which this rule applies must apply the first instance costs provisions when deciding whether to award costs in relation to the internal appeal.
As the appeal was lodged after 1 January 2016 and concerned proceedings to which cl 38 of the Rules applies, it follows that cl 38A applies to the costs of the appeal. This means that, contrary to the builder's submissions, we are not required to find special circumstances when making a costs order.
Where an appeal has been heard and determined on the merits and cl 38A applies, the appropriate starting point for the exercise of the discretion is not that the parties are to pay their own costs. Rather, it is the well-established position at common law; that is, that the purpose of making a costs order is to provide compensation to the party in whose favour the order is made for the expense the party has been put to in prosecuting or defending legal proceedings. In general terms, this means that a party who is successful is entitled to an order for costs in its favour, subject to exceptions generally involving misconduct on the part of that party: Latoudis v Casey [1990] 170 CLR 534; Oshlak v Richmond River Council [1998] HCA 11.

Calderbank offers

'Calderbank' offers are made pursuant to the principles set out in Calderbank v Calderbank [1976] Fam Law 93; 3 All ER 333; 3 WLR 586. Such principles have been the subject of extensive judicial and Tribunal consideration. In Singapore Airlines Cargo Pty Ltd v Principle International Pty Ltd (No 2) [2017] NSWCA 340, the NSW Court of Appeal stated (at [30]): "Calderbank offers are a well-established means of parties seeking to compromise proceedings in circumstances where, provided that the offer is a genuine offer of compromise and the opposing party unreasonably rejects the offer, the court may, in the exercise of its discretion, make a special costs order in favour of the offeror".
In relation to a claim for indemnity costs based on the refusal of a Calderbank offer, a Calderbank offer in more favourable terms that the outcome of proceedings does not of itself entitle the offeror to an order for indemnity costs: Jones v Bradley (No. 2) [2003] NSWCA 258.
In Miwa Pty Ltd v Siantan Properties Pte Ltd (No. 2) [2011] NSWCA 344, Basten JA identified two questions which are relevant to a Calderbank offer and a claim for indemnity costs. They are whether there was a genuine offer of compromise and whether it was unreasonable for the offeree not to accept it.
Basten JA (with whom McColl and Campbell JJA agreed) adopted the non-exclusive list of factors identified by the Victorian Court of Appeal in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 at [25]: 1. the stage of the proceeding at which the offer was received; 2. the time allowed to the offeree to consider the offer; 3. the extent of the compromise offered; 4. the offeree's prospects of success, assessed as at the date of the offer; 5. the clarity with which the terms of the offer were expressed; 6. whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it.

Issues

The issues to be determined on the costs application are: 1. Should an order be made dispensing with a hearing in accordance with s 50(1)(c) of the NCAT Act? 2. Should an order for costs be made in favour of the homeowners? 3. If so, on what basis should the costs order be made?

Should an order be made dispensing with a hearing in accordance with s 50(1)(c) of the NCAT Act?

The parties were given an opportunity to make submissions in relation to whether a hearing on costs should be dispensed with. Neither party submitted that costs could not be determined on the papers.
We are satisfied that the issue of costs can be adequately determined in the absence of the parties by considering the parties' written submissions.
An order under s 50(1)(c) of the NCAT Act has accordingly been made.

Should an order for costs be made in favour of the homeowners?

We are satisfied that the homeowners were the successful party in the appeal proceedings. While they were successful in establishing only one of their grounds of appeal, it was the most significant ground argued. On the other hand, the builder was completely unsuccessful in its appeal.
We accept that the starting position is that the homeowners are entitled to recover their costs of and incidental to the appeal proceedings in circumstances where there has been no submission that disentitling conduct on their part should cause the discretion to award costs in their favour not to be exercised. In the circumstances of the case, we are not satisfied that the homeowners' unsuccessful grounds of appeal were so misconceived or lacking in substance that the raising of such grounds constitutes disentitling conduct.
In circumstances where the homeowners succeeded on the most significant ground of appeal argued we are satisfied a costs order should be made in their favour in the appeal proceedings. The final issue to consider is whether costs should be payable on the ordinary basis, or a special costs order (involving indemnity costs) should be made.

On what basis should the costs order be made?

The homeowners seek an order for costs on an indemnity basis from 16 November 2016, the date on which they made a settlement offer to the builder, in a form which they submit was in the nature of a Calderbank offer. We have the power to decide on what basis costs should be awarded: s 60(4)(a) NCAT Act.
We are not satisfied that costs should be awarded on an indemnity basis for the following reasons.
First, the outcome proposed by the homeowners in the letter dated 16 November 2016 was not in fact an offer of compromise. What was offered was precisely what was achieved by the appeal; that is, the decision in the homeowners' appeal had the effect of increasing the damages awarded to the homeowners to $95,754.00, the sum set out in the letter. The homeowners' other grounds of appeal were dismissed. Given that the 16 November 2016 letter did not make any offer in respect of costs, the homeowners' position has not been improved by the appeal decision.
Second, we are not satisfied that it was unreasonable for the builder to refuse the offer at the time it was made. This is because, while the offer was made prior to the lodgement of the appeal and gave sufficient time to the builder to consider it, it offered no compromise in respect of the strongest aspect of the homeowners' case. Further the other proposed grounds of appeal were weak and the offer did not foreshadow an application for indemnity costs in the event that it was rejected.
We conclude that costs should be awarded on the ordinary basis.

Orders 1. A hearing on costs is dispensed with pursuant to s 50(1)(c) of the Civil and Administrative Tribunal Act 2013. 2. National Strategic Construction Pty Ltd is to pay Paul Deacon and Emilie Deacon's costs of the appeals in both appeal proceedings, on the ordinary basis, as agreed or assessed.

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. Principal 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: 31 January 2018

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