Gassman & Anor v Peck

NCAT Appeal Panel|2016-08-29

Background

The respondent nominated by the owners in the application commencing the proceedings on 1 April 2014 was "Impeckable Constructions Pty Limited" which it transpired was non-existent at the time the contract was entered into. In fact the contractor/ builder was Nathan Peck, who was the director of the company when it was subsequently incorporated.
In the application, the owners stated that the reason for the application was that the company had refused to return to complete the work and also fix defects. There is no evidence that Mr Peck denied that. It appears from the Members reasons that the owners had previously sought assistance from the Department of Fair Trading and a direction was made by the Department (presumably addressed to the company), but the company did not comply (and nor did Mr Peck).
Rule 26 of the Rules provides that the respondent to the proceedings could file a Reply to the application "setting out the respondent's response to the application". Subrule 26(4) provides that the Tribunal may "direct a respondent to lodge a reply…". The Member's reasons do not disclose whether any such direction was made or whether any Reply was filed.
The Appeal Panel was not provided with any Reply by the respondent to the application commencing the proceedings. Nor was there any evidence of a direction to file one. It appears there was no reply.
When the matter first came before the Tribunal on 15 May 2014, Mr Peck appeared on behalf of the company as a director of the company and the owners appeared in person. There was an agreement reached for interim consent orders for the company to perform specified rectification work in accordance with the report of the appellant's expert, "Worthingtons" and, in the member's words, "in relation to monies to be paid by the owners to the company". The evidence does not disclose whether that order (or orders) was to suspend, delay, vary or impose conditions on such payment(s) or was to some other effect.
Interim orders were made by consent giving effect to the agreement and the hearing was adjourned with a view to the proceedings being withdrawn by the owners if final settlement was reached.
When the matter again came before the Tribunal on 18 August 2014, the work ordered on 15 May had not been done. After further discussions final orders were made by consent that day for the company to carry out outstanding work in the Worthington report by 18 September 2014. The owners were given leave to renew the proceedings as a money claim if the orders were not complied with.
When the matter was again before the Tribunal on 23 March 2015, the owners made a renewal application for 2 items that had not been completed: 1. Water entry through the windows; and 2. Lack of stainless steel guttering screws.
On 27 April 2015 the matter was again before the Tribunal. The owners attended but there was no appearance for the respondent company. The Tribunal adjourned the matter with directions regarding the exchange of evidence. The Member granted the owners leave to amend the application to seek a money order and, subsequently after an extension of time was sought by the owners and given, that was done.
On 10 June 2015 Mr Peck's solicitor wrote to the Tribunal advising that the correct respondent was in fact Mr Peck, not the company nominated in the application.
The proceedings had been listed for hearing on 15 June 2015. Both parties were present and legally represented at the Tribunal. Evidence was produced that the company did not exist at the time of the contract and the contract in fact was between the owners and Mr Nathan Peck. As a result of that the member found that the orders made on 18 August 2014 were invalid. They were set aside and the matter was listed for further hearing. The application was amended to nominate Mr Peck as the respondent instead of the company.
The application to renew was dismissed on the basis that the Tribunal did not have jurisdiction because the previous orders for work to be done were invalid because they were against the company when the company didn't exist at the time of the home building contract being entered into and Mr Peck was the builder; not the company subsequently incorporated. Directions were made regarding exchange of evidence and granting leave for both parties to have legal representation. The application was amended to show Nathan Peck as the respondent instead of the company.
The matter was then back before the Tribunal on 7 September 2015. Solicitors for the parties appeared. Further directions were made regarding the exchange of evidence.
The owners filed a 33 page Scott Schedule dated 3 November 2015. It was prepared for the owners by Mr A D Connor a licensed builder, principal building surveyor and building consultant listing 10 items of rectification work the owners sought and detailing the problems and the work required and providing estimated costs of each item.
The Scott Schedule also lists the following items that are not rectification items: - 7.11 GST of 10% on estimated costs of 7.1 to 7.10 $4,020.00 7.12 Cost of certificate of currency of Home Warranty Insurance of rectifying builder $235.96 7.13 Costs of expert witnesses and reports unquantified

The estimated costs for the rectification items plus items 7.11 and 7.12 totalled $44,455.96. It appears the Scott Schedule was served on Mr Peck, but there is no evidence of any responses to that document provided by Mr Peck.
On 16 November 2015 Mr Connor and Mr Bullivant, (a building expert on behalf of Mr Peck) attended a conclave of experts and reached agreement comprising a list of work requiring rectification or completion for which the builder was responsible. There are 11 items listed and numbered 7.1 to 7.11. They are the defects listed in the owners' Scott Schedule, plus an additional item 7.11 which is ""Water leakage to ensuite floor tiling" and the rectification work the experts agreed was required for that was "(a) Adequately seal the shower recess to prevent water causing damage to building elements by the installation of perimeter flashings, including water stops; and (b) complete the water stop to the walk-in robe doorway including the timber door jambs/architraves.
The experts found only part of one item which they agreed was a maintenance matter and the responsibility of the owners; not Mr Peck. That was part of item 7.6. It was decided that achievement of the contracted corrosion protection to exposed structural steel and fittings to ensure an economic life of 50 years was subject to future cleaning and maintenance by the owner. But the experts agreed that to ensure an initial first maintenance life of 15-25 years the Australian Standard recommended using a "600" galvanised and epoxy coating system and this was the builder's responsibility. That part of item 11.6 and all the other items of work listed in the document were agreed by the experts in that document to be the responsibility of Mr Peck.
On 10 December 2015 the owners filed a document headed "Applicants' Particulars of Claim" and in that they particularised 12 items they had listed in the Scott Schedule and also indicated the estimated cost of each of those items. They were the first 10 items of work in the Record of Conclave and the last 2 items were GST and $235.96 for the Home Warranty Insurance Certificate.
The 10 work items listed were all the work that the conclave of experts had agreed was the responsibility of the builder except item 7.13 ("Water leakage to ensuite floor tiling"). It appears that that item of work must have been done between 16 November 2015 and 10 December 2015.
The owners in their original Application filed 1 April 2014 sought orders for "Repair Outstanding Defects" and likewise in the amended application of 15 June 2015. They stated in the first 2 paragraphs of the Applicants' Particulars of Claim document that their "primary position is that a work order would be appropriate in this case, in the form largely agreed between the experts" and "In the alternative, the Tribunal should make a money order in the amount of $44,455.96 plus costs as agreed or assessed". The amount of $44,455.96 was the total estimated costs for the 12 items listed in the document.
On 11 December 2015 the same experts produced an amended record of conclave. The only changes to the work required of the builder for defects since the Record of Conclave of 16 November were: 1. the work required for defect 7.6 ("Corrosion protection to exposed structural steel and associated fixings") was stated as : "Wire brush and clean down steel posts and apply an epoxy duplex system to elements not already painted by the home owners".; and 2. the item for "Water leakage to ensuite floor tiling was omitted.
On 11 December 2015 the matter was again before the Tribunal for hearing. It was finally settled that day and consent orders were made for the respondent builder to undertake a list of about 3 pages of work. The orders required that the work be completed "in a proper and workman-like manner on or before 24 March 2016". The defects to be rectified are those in the amended experts' report of 11 December. The orders include some limited additional provision for some choices of methods of rectification to be made by the experts at particular stages.
The owners had sought an order for Mr Peck to pay their costs. The orders made that day included orders for the parties to file submissions in relation to that costs application.
On 20 May 2016 the Member delivered a written decision and refused the application of the owners for an order for costs. This is the hearing of the owners' appeal filed on 20 June 2016 against that costs decision.
It is common ground that the owners' claim was for more than $30,000 and Rule 38(2) applies.

Case Law regarding costs where proceedings determined by consent orders rather than by the court or tribunal

In Minister for Immigration & Ethnic Affairs (Cth): Ex Parte Lai Qin (1997) 186 CLR 622 at 625 McHugh J referred to the fact that usually, where there has been a hearing on the merits, a successful party is entitled to his or her costs and "success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a cost order. When there has been no hearing on the merits, however, a court is necessarily deprived of the fact that usually determines whether or how it will make a cost order". His Honour continued and said: 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. Australian Securities Commission v Aust-Home Investments Ltd (1993) FCR 194 at 201; 116 ALR 523 at 530. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. 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. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no example, in R v Gold Coast City council; Ex parte Raysun Pty Ltd [1971] QWN 13, The full Court of the supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans. 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. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission Fed Ct of A, (10 February 1989 unreported), where His Honour ordered the respondent to pay 80% of the applicant's taxed costs even though His Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare. 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. This approach has been adopted in a large number of cases.
That dictum has been followed and applied in the NSW Supreme Court by Slattery J in Mabel Dorothea Fligg v The Owners Strata Plan 53457 [2012] NSWSC 230; Ball J (In Eq) in Transfield Services (Australia) (Pty Ltd) v James Gaha [2012] NSWSC 865 (at [27]); and by Harrison J in Farah v Elias [2015] NSWSC 1417 (at [17]); and by an Appeal Panel of the Tribunal in Hertslet v Doherty; Doherty v Hertselt [2016] NSWCATAP 46 [at par 28]. It has also been applied in a recent decision of a member of this Tribunal in Glover v Buckton Building Pty Limited [2015] NSWCATCD 146 (at [60].
In his reasons appealed from the Member held at [26]: "the Tribunal is of the view that it should not determine whether it is 'almost certain' that the applicants would have succeeded in circumstances where no hearing has been conducted, or even commenced".
The member also concluded [at 27]: "again, without conducting a hypothetical hearing at this juncture, the Tribunal is not in a position to find that the respondent has effectively surrendered to the applicant".
Both these statements involve a misunderstanding of the law.
In all of the cases referred to in [77] above, except the decision of McHugh J in Re Minister for Immigration & Ethnic Affairs (Cth); Ex parte Lai Qin (1997) 186 CLR 622 and Hertslet v Doherty; Doherty v Hertslet [2016] NSWCATAP 46, the court or Tribunal made a costs order of some type (including a percentage order or an order for costs for 1 day) notwithstanding that the proceedings were resolved by settlement and without trial.
The Member's expressed view that the tribunal could not determine whether it was "almost certain" that the owners would have succeeded in a hearing was a response to competing submissions by the parties on that issue. It was open to the member to have decided that issue on the basis of the material available to him. There was no authority that he "should not" determine that issue.
Similarly, the issue raised by the owners as to whether the Mr Peck had "effectively surrendered" to the owners or had admitted liability did not require a hypothetical hearing, but a consideration of the material and submissions available to the member. He could have decided that issue. The member erred in making a finding that he should not determine that issue and in finding that he was "not in a position to find that the respondent has effectively surrendered to the appellants". He was able to consider the relevant material available to him and decide that issue.
Accordingly grounds 1 to 5 of the appeal have been established.

Consequence of the Member's errors

The Member therefore made errors of law per grounds 1 to 5 of the appeal.
The powers of the appeal panel hearing an internal appeal where there has been an error of law are listed in s81 of the Act and include power to reconsider (with or without further evidence), set aside, confirm, affirm or vary the decision under appeal (s81(1)( b)). The Appeal Panel has reconsidered the application for costs.
Because of the success of the appellants in respect to Grounds 1 to 5, the Appeal Panel needs to determine, having regard to the material available to it, what the correct determination should be of the owner's costs application.

Unreasonable conduct of Mr Peck - up to 15 June 2015

One of those matters was the fact that in the proceedings from their commencement on 1 April 2014 until the matter came on for hearing on 15 June 2015, the respondent was a company that did not exist at the time of the contract. Mr Peck had been the person defending the claim in the name of the company. At first sight, it might appear that the owners were responsible for this error by making the application against Impeckable Constructions Pty Limited instead of Mr Peck. The member referred to this submission by Mr Peck in relation to the costs order, but it is unclear whether he accepted that submission. He did not find that the applicants acted unreasonably.
Mr Peck, was a director (possibly the only director as no other director was involved in the proceedings before the tribunal or mentioned in the material before the appeal panel) of the company when it was incorporated. In the absence of evidence to the contrary, the evidence supported a finding that Mr Peck knew at all material times, including when the fair trading direction was made, that he was the builder; not the company. In the absence of evidence to the contrary, he knew that the company was not incorporated at the time of the contract, and at the time that the application was served.
Mr Peck did not disclose that he was the builder and the correct respondent to the owners until 10 June 2015, after the hearing date of 15 June 2015 had been set on 27 April 2015.
In the absence of evidence to the contrary, the inference is that the owners in the proceedings probably came to nominate "Impeckable Constructions Pty Limited" as the builder in dealings with the Department of Fair Trading and in the application to the Tribunal because of information provided to them by Mr Peck.
As a consequence of the wrong party being nominated in the application as the respondent, the orders made, and particularly the orders of 18 August 2014 were defective and the Member set aside the orders of 18 August 2014 as invalid. He also dismissed the pending application to renew, which was reliant upon the final orders of 18 August 2014 and was dismissed by the member on the basis that the Tribunal had no jurisdiction for a review application (because the work orders of 18 August 2014 were invalid).
The matter was then set down for hearing 7 September 2015 and directions made about exchange of evidence and legal representation for both parties. The application was amended to show Mr Peck as the respondent.
The conduct of Mr Peck in allowing the application to go forward nominating the incorrect party as the builder lead to the proceedings against the company continuing from April 2014 to June 2015, and the orders then becoming invalid and the application to renew being dismissed.
Mr Peck's conduct, although he was not a party to the proceedings at that stage, by failing to correct the error, allowed the proceedings to continue to be misconceived and lacking in substance. He caused the proceedings to be prolonged, unnecessarily disadvantaged the owners, and caused unnecessary costs to be incurred by the owners.
There was other conduct of Mr Peck in that period that was relevant. Having failed, as the builder, to perform rectification work directed to be performed by the Department of Fair Trading before the proceedings were commenced, he failed, as the builder, to comply with interim orders for rectification work that he had consented to (albeit in the name of the company) on 15 May 2014 and 15 August 2014. And subsequently, on 27 April 2014 when the renewal application by the owners was listed for hearing, he failed to attend or arrange any appearance. Consequently the hearing was adjourned.
It was listed again for 15 June 2015 and the hearing was adjourned again because of Mr Peck's disclosure, more than 14 months after the Directions of the Department of Fair Trading and the commencement of the proceedings, that he was the builder; not the company.
Together these matters are clearly relevant in relation to the question of the costs application made by the owners in the proceedings against Mr Peck. They unnecessarily disadvantaged the owners. They unreasonably prolonged the proceedings. They are also conduct contrary to Mr Peck's obligations under s 36 of the Act. They constituted unreasonable conduct by Mr Peck in the proceedings and special circumstances that would warrant an award of costs against him personally and in favour of the owners.
The Panel notes too that the Owners failed to comply with directions regarding filing of evidence and applied for and obtained an extension of time on 22 May 2015, and again on 7 September 2015. That conduct was also contrary to s36 of the Act. But it appears that Mr Peck had not filed evidence in his case on either occasion. The disadvantage to him of the Owners' default after 15 June was additional costs for deferral of the hearing fixed for 7 September, being the costs of appearance that day and consequent work to arrange lawyers and witnesses for 11 December.

Were the owners "almost certain to have succeeded?

The Appeal Panel has concluded that the owners were almost certain to have succeeded if the proceedings were determined by a defended hearing for the following reasons: 1. The material before the panel does not disclose that Mr Peck, either on his own behalf or on behalf of the company, denied liability for any claim for rectification by the owners in any Reply or otherwise. 2. There is no evidence of any response(s) by Mr Peck to the Scott Schedule prepared by the Owners' expert, Mr Connor dated 3 November 2015; 3. There is no evidence of any expert opinion of the rectification work for which the builder was liable contrary to that in the Scott Schedule of Mr Connor and the agreements of My Connor and Mr Bullivant of 16 November 2015 and 11 December 2015; 4. Mr Peck (on behalf of the company) consented to interim rectification orders in accordance with the report of the owners' expert "Worthingtons" on 15 May 2014 and 18 August 2014. The evidence is that that report was available before the proceedings were commenced. 5. The items in the work orders made by consent on 11 December 2015 concluding the proceedings comprise the 10 rectification items in the Owner's Scott Schedule of 3 November 2015 and were the first 10 items included in the agreement of the experts, Mr Connor and Mr Bullivant, of 16 November 2015 and stated to be rectification work for which the builder was responsible. (The 11th item, "water leakage to ensuite floor tiling" was apparently rectified before 10 December.) 6. Those 10 rectification items also comprise the 10 work items in the "Applicant's Particulars of Claim" of 10 December 2015 and the 10 rectification items listed in the agreement of Mr Connor and Mr Bullivant of 11 December 2015; and 7. The material before the tribunal does not disclose that there was any different outcome (to that in the work orders made) proposed by or on behalf of Mr Peck. The agreement that determined the proceedings did not occur till more than 20 months after the proceedings commenced.

Did Mr Peck effectively surrender to the clams of the owners?

The Appeal Panel does not have available to it any evidence of negotiations between the parties, and particularly, what proposals, if any, were made by either of the parties for resolution of the proceedings. On the material available to the Appeal Panel it appears that the delay in the proceedings was largely because Mr Peck put the owners to proof. Once Mr Peck had the Scott Schedule of 3 November 2015 he could have offered to resolve the proceedings by orders similar to those made on 11 December 2015. When the agreement of the experts of 16 November 2015 was available, he could have proposed a settlement. There is no evidence that Mr Peck at any time before 11 December 2015 proposed a settlement by orders for rectification of the defects the experts agreed were his responsibility to rectify.
Mr Peck consented to the interim orders for rectification work (albeit on behalf of the company) on 15 May 2014 and final orders for rectification work on 18 August 2014. He also consented to final orders for rectification work on 11 December 2015. He did not file any reply in the proceedings denying liability or making other denials. He did not provide responses to the Scott Schedule. The orders he consented to on 11 December 2015 were essentially for the work in the Scott Schedule of 3 September 2015 (as agreed by the conclave of experts of 16 November 2015).
The panel concludes that in effect Mr Peck effectively surrendered (albeit over a period of almost 21 months) to the claims of the owners.

Conclusions

The unreasonable conduct of Mr Peck in the proceedings up to and including 15 June 2015 for the reasons set out above regarding that matter are circumstances that warrant an order for costs against him in respect of the owners' costs up to and including 15 June 2015.
The owners' conduct discussed in para 103 above is a matter that constitutes a circumstance that warrants a contra allowance in any costs order in favour of the owners. On the limited material available to the Panel the amount of additional costs incurred by Mr Peck as a result of that conduct of the owners is estimated at about $500.00.
The fact that the owners were almost certain to succeed in their claim, the delay of Mr Peck in doing the rectification work he was liable to do, and his delay in reaching an agreement to do the rectification work are circumstance that warrant an order for Mr Peck to pay owners' costs of the proceedings after 15 June 2015.
There therefore should be an order that Mr Peck pay the owners' costs of or incidental to the proceedings less $500.00.

Costs of the appeal

Each of the Appellants and the Respondent seeks an order for their costs of the appeal to be paid by the other side.. The appellant owners have been successful in the appeal. There is a finding that they were almost certain to succeed in their proceedings before the member. The material before the Panel does not disclose any factor supporting a different order to the costs order the appellants seek. Consequently there should also be an order that Mr Peck pay the owners' costs of the appeal.

Orders

The Orders of the Appeal Panel therefore are: 1. The appeal is allowed; 2. The order of the Tribunal of 20 May 2016 that "Each party is to bear its own costs" is set aside; 3. The respondent to the appeal, Nathan Peck, must pay the costs of the appellants Peter Gassman and Beth Roddy in proceedings HB 14/17549 in the Consumer and Commercial Division of the Tribunal as agreed (or as assessed) less $500.00; and 4. The respondent to the appeal Nathan Peck must pay the Appellants' costs of the appeal as agreed or as 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: 29 March 2017

Issue Whether Rule 38(2) is Ulra Vires because it is inconsistent with S 60?

On the particular facts in this matter it is not necessary to decide this question, because the Tribunal is satisfied that there are circumstances that would warrant the making of a costs order, which avoids deciding this issue.
At first glance it may seem inherently unlikely that the Rule Committee would have power to make a rule extending the power to make costs orders given to the Tribunal by the Act. There is no provision of the Act expressly extending the power of the Rules committee to making orders that are inconsistent with the Act. Section 25 is the only legislative provision that expressly gives the Rule Committee power to make Rules. There is no legislative provision that expressly validates a rule made by the Rule Committee that is not an exercise of the power under section 25.
Section 35 is in Part 4 the Act and makes the provisions of Part 4 (including S 60,) subject to the procedural rules. But section 25 is in Part 2 of the Act and Part 4 does not apply to it. It might be argued that where the "procedural rules" or "rules" are referred to in Part 4 there is an inference that it is rules that are within the power in section 25 and otherwise valid. It has been argued in in earlier proceedings that there is no provision in the Act that validates a rule that is ultra vires under S 25.
In Nguyen v Perpetual Trustee Company Ltd; Perpetual Trustee Company Ltd v Nguyen [2015] NSWCATAP 264 an appeal panel held that Rule 38 is valid because of S35 of the Act, which provides that each of the provisions of Part 4 of the Act (which includes s60) "is subject to enabling legislation and the procedural rules".
In that decision the Appeal Panel decided (at [86]) that because s60 is contained in Part 4 therefore it is subject to Rule 38(2). It could seem that there was an assumption that Rule 38 was validly made and be argued that this basic issue as to the validity of the rule should have been addressed by the panel as preliminary to any discussion of whether there is a conflict between a valid rule and s60.
In the decision of the Appeal Panel in Bonita v Shen [2016] NSWCATAP 159 (25 July 2016) it was held (at [34] to [41]) that the effect of s 35 and the definition of "procedural rules" in s 4(1) of the Act is that s 60 is subject to Rule 38 and the requirement of a special circumstance does not apply.
That appeal panel also relied upon para 78(2)(a) of the Interpretation Act 1987 to hold Rule 38 valid.
However, the contrary argument to the argument that Rule 38(2) is ultra vires is that s4(4) of the Act provides "Any provisions of this Act that are expressed to be subject to the procedural rules have effect subject to the any exceptions, limitations or other restrictions specified by the procedural rules". Section 60, as a provision of Part 4 of the Act, is, by section 35 Subject to the procedural rules and Rule 38 provides for proceedings in the Consumer and Commercial Division, an exemption from the requirement in S 60 for "special circumstances" warranting a costs order and some specific limitations of when costs orders can otherwise be made. The provisions of s 60 are therefore subject to Rule 38.
S4(5) also provides that subject to s17(3), which is not relevant here, "procedural rules that make provision as referred to in subsection (4) are not inconsistent with this Act". It has not proved necessary in this case to determine whether Rule 38(2) is ultra vires. But for the reasons expressed the Panel is satisfied that Rule 38(2) is not inconsistent with s60 and is therefore within power of the Rule Committee.

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