Gilliland v Kingdom Building Pty Ltd

NCAT Consumer and Commercial|2023-08-22

REASONS FOR DECISION

These reasons for decision relate to the costs of proceedings which have settled.
The applicant (the homeowner) seeks an order that the respondent (the builder) pay the applicant's costs of the proceedings as agreed or assessed.
The builder says that there should be no order for costs for the period up to 19 April 2023, and that for the period thereafter the homeowner should pay the builder's costs.
For the reasons that follow I have decided to dismiss the parties' respective applications for costs and to make an order that each party pay their own costs.

Background

The dispute was a residential building dispute involving renovation works carried out by the builder at the homeowner's premises in 2021.
On or about 17 December 2020 the parties entered into a "residential major works contract" for demolition and construction works at the premises and a "residential major works contract for the construction of a granny flat at the premises (together, the "Contracts").

Issues

The issues to be determined are: 1. Should an order be made dispensing with a hearing, pursuant to s 50(1)(c) of the Civil and Administrative Tribunal Act 2013 (NSW) (the NCAT Act)? 2. Is either party entitled to an award of costs and if so, for what period?

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

Section 50 of the NCAT Act relevantly provides: 50 When hearings are required (1) A hearing is required for proceedings in the Tribunal except: … (c) if the Tribunal makes an order under this section dispensing with a hearing, or … (2) The Tribunal may make an order dispensing with a hearing if it is satisfied that the issues for determination can be adequately determined in the absence of the parties by considering any written submissions or any other documents or material lodged with or provided to the Tribunal. (3) The Tribunal may not make an order dispensing with a hearing unless the Tribunal has first: (a) afforded the parties an opportunity to make submissions about the proposed order, and (b) taken any such submissions into account. (4) The Tribunal may determine proceedings in which a hearing is not required based on the written submissions or any other documents or material that have been lodged with or provided to the Tribunal in accordance with the requirements of this Act, enabling legislation and the procedural rules.
Both parties have consented to the matter being determined on the papers.
I am satisfied that the issue of costs can be adequately determined in the absence of the parties by considering the parties' written submissions. In my view, the parties would be put to unnecessary expense if a hearing on costs was held.
I am therefore making an order dispensing with a hearing under s 50(1)(c) of the NCAT Act.

Costs - legislative framework

Section 60 of the NCAT Act is the starting point for considering costs applications in the Tribunal.
This section relevantly provides: 60 Costs (1) Each party to proceedings in the Tribunal is to pay the party's own costs. (2) The Tribunal may award costs in relation to proceedings before it only if it is satisfied that there are special circumstances warranting an award of costs. (3) In determining whether there are special circumstances warranting an award of costs, the Tribunal may have regard to the following: (a) whether a party has conducted the proceedings in a way that unnecessarily disadvantaged another party to the proceedings, (b) whether a party has been responsible for prolonging unreasonably the time taken to complete the proceedings, (c) the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law, (d) the nature and complexity of the proceedings, (e) whether the proceedings were frivolous or vexatious or otherwise misconceived or lacking in substance, (f) whether a party has refused or failed to comply with the duty imposed by section 36 (3), (g) any other matter that the Tribunal considers relevant.
Clause 38 of the Civil and Administrative Tribunal Rules (NSW) 2014 (NCAT Rules) modifies the application of s 60 in certain proceedings before the Consumer and Commercial Division of the Tribunal.
Notably, cl 38(2) relevantly provides: (2) Despite section 60 of the Act, the Tribunal may award costs in proceedings to which this rule applies even in the absence of special circumstances warranting such an award if - … (b) the amount claimed or in dispute in the proceedings is more than $30,000.

Consent orders

Before addressing the parties' respective submissions, it is helpful to provide the following overview of the parties' agreement (which is reflected in the consent orders): 1. The agreement requires the builder to carry out works set out in an agreed scope of works which was prepared with the assistance of an independent expert - Mr Capaldi - who was appointed after the hearing to assist the parties to finalise their agreed scope of works (the scope of works). 2. The agreement requires the builder, at its own cost, to engage Mr Capaldi to superintend the works by conducting a pre-works inspection, up to four inspections during the course of the works, and further inspections to confirm whether the works have been completed with due care and skill and in accordance with the scope of works. 3. The works specified in the scope of works relate to items 1, 2, 3, 6, 7, 8 10 and part of item 4 of the scott schedule; 4. With regard to item 4 ("Water ingress garage wall"): 1. the parties agree on a scope of works to rectify the inside face of the garage external side wall: and 2. with regard to the garage side wall rear corner (specifically the "exposed length of timber framework and the blistering and bubbling length of horizontal cladding"), the parties agree that the builder shall "without admission of liability … pay $2,800 the Applicant for the Applicant to arrange for these items to be rectified". 1. With regard to item 5 ("Front entry masonry structure") the parties agree that the builder shall "without admission of liability … pay $2,800 to the applicant for the applicant to arrange for these items to be rectified". 2. With regard to item 9 ("building debris") the parties agree that Mr Capaldi is to decide whether the disputed building debris was from the builder's work and, to the extent that he decides it is such material, the builder is required to remove it.

Costs submissions of the parties

The homeowner filed costs submissions on 26 July 2023.
The builder filed costs submissions on 1 August 2023.
The homeowner filed costs submissions in reply on 9 August 2023.
The Tribunal has read and considered the submissions of the parties.
The homeowner submits that she is entitled to an award of costs because, in summary: 1. the amount claimed or in dispute in the proceedings was more than $30,000 and therefore cl 38(2)(b) applies; 2. the starting point for the Tribunal's exercise of its costs discretion on the usual principles is that "costs follow the event"; 3. the "event" is usually the overall outcome of the proceedings; 4. the homeowner was overall the successful party; 5. the settlement offers made by the builder before and after the hearing do not meet the criteria for a successful Calderbank offer in that they either did not provide sufficient detail for the homeowner to make a proper decision regarding the builder's proposed scope of works, or the builder continued to refuse to have the works superintended or inspected and certified by third parties.
The builder submits in summary that there should be no order for costs for the period to 19 April 2023 because the builder was not given a reasonable opportunity to rectify the defects. The builder further submits that it is entitled to its costs for the period after 19 April 2023 because, applying the Calderbank principles, the homeowner unreasonably rejected genuine offers to compromise the dispute.
Unfortunately, the submissions of the legally represented parties made no reference to the well-established principles applying to costs disputes when proceedings have resolved by consent or have not been determined on the merits. The relevant authorities include Re Minister for Immigration and Ethnic Affairs: Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 and Nichols v NFS Agribusiness Pty Ltd [2018] 97 NSWLR 691; [2018] NSWCA 84 ('Nichols').

Does cl 38(2)(b) of the NCAT Rules apply?

The homeowner submits that cl 38(2)(b) applies in this instance as the amount claimed or in dispute in the proceedings was more than $30,000. The builder has made no submissions on this issue and impliedly appears to accept the homeowner's position.
The homeowner submitted expert evidence that the cost of rectifying the defective work was in the vicinity of $130,000. Irrespective of whether or not the Tribunal (had it determined the case on the merits) accepted that evidence, and taking into account the other components of the homeowners claim, the Tribunal is satisfied that the amount "claimed or in dispute" in the proceedings exceeded the $30,000 threshold under the Reg. 38 (2) (b) of the NCAT Rules.

Should there be a costs order in favour of either party?

Although the parties' evidence was presented to the Tribunal, and their respective witnesses were cross-examined, neither party provided closing submissions on the substantive issues in dispute. Instead, the parties settled the dispute and a consent order was made by the Tribunal to give effect to the parties' settlement agreement. As a result, the matter was not determined on the merits.
The principles applicable were summarised in Taylormade Residential Pty Ltd v Hoare [2021] NSWCATAP 182 ('Hoare') (which was upheld on appeal in Hoare v Taylormade Residential Pty Ltd [2022] NSWSC 1359) as follows at [57]: Where, as here, the Tribunal is asked to make a costs order under rule 38(2)(b) in circumstances where the substantive proceedings have been resolved between the parties, apart from the issue of costs, the usual order is no order as to costs. However, the Tribunal may be persuaded that a costs order is appropriate where one party effectively surrenders to the other's claim; or where one party has acted so unreasonably that the other party should obtain their costs; or, where they have both acted reasonably and one party was certain to succeed in the proceedings.
In Nichols, Basten JA stated at [2]-[3]: Where the parties resolve their differences, except as to the costs already incurred in litigation, they should usually expect that the court will not award costs. That is because the general rule applicable in civil litigation in superior courts [1] is that costs will "follow the event". That rule is frequently paraphrased by reference to its purpose, namely that the successful party should generally recover its costs from the unsuccessful party. But where there has been no trial there is no "event" because, except in unusual cases, it is not possible to say that one party has been successful and the other unsuccessful. The orders made by consent may or may not demonstrate capitulation by the "unsuccessful" party. In unusual cases, it may be possible to identify success which is manifest on the face of the record. However, to manufacture a dispute in order to resolve that question is to disregard the statutory obligation imposed on the parties, their legal representatives and the court to conduct civil proceedings so as to facilitate the just, quick and cheap resolution of the "real issues in the proceedings." [2] As explained in Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd: [3] "That purpose may require a more robust and proactive approach on the part of the courts. Unduly technical and costly disputes about non-essential issues are clearly to be avoided. The Court further stated: [4] "It could hardly be suggested that the pursuit of satellite interlocutory proceedings of the kind here in question in any way fulfils the overriding purpose of the [Civil Procedure Act]. To the contrary, it is the very kind of conduct which should be avoided if those purposes are to be achieved."
Basten JA also referred at [8]-[9] to the cautious approach that should be taken to the untested assertions of a party that the other party acted unreasonably (or that a party was certain to succeed in the proceedings) and that there should be focus upon "known circumstances not in dispute between the parties" and what is "manifestly" obvious without reviewing large swathes of evidence and attempting to resolve disputed questions of fact. Payne JA (with whom Meagher JA agreed) raised the same issue at paras [47] and took a similar approach.

Did either party act unreasonably?

The Tribunal is not satisfied that the homeowner acted unreasonably in bringing or continuing the proceedings against the builder, nor that the builder acted unreasonably in defending the proceedings. There was clearly a legitimate dispute between the parties as to the matters set out above. The experts had different views in relation to a number of issues, including in particular the works required to address the retaining wall, and were cross-examined at length about these issues.
There was also manifestly a disagreement as to whether the homeowner was entitled to have the remedial works superintended and certified by a third party.
The builder says it was at all times willing and able to rectify the defects and that the homeowner acted unreasonably by refusing to allow the builder to do so, thus prolonging the proceedings. I disagree with this proposition. There was genuine disagreement between the parties about a number of issues which would have required determination by the Tribunal had the matter not settled. One of those issues was whether the homeowner was entitled to require the builder to have the works superintended by a third party. This claim by the homeowner, which was ultimately agreed by the builder as part of the terms of settlement, was one of the issues which would have required determination by the Tribunal.
Although both parties would have saved themselves legal costs had they resolved the matter prior to the hearing date, the mere fact that the matter did not resolve earlier does not demonstrate any unreasonable conduct on the part of either party.
In this regard the builder says that applying the Calderbank principles, an offer letter sent to the homeowner on 28 March 2023 (offer letter) justifies a departure from the usual position and warrants a costs order being made in favour of the builder. I note that the homeowner's submissions refer to several other offer letters subsequently made by the builder but the builder's submissions do not rely on any of those subsequent letters in support of its position that a costs order should be made in its favour.
As the Appeal Panel said in Bright Build Pty Limited v The Owners - Strata Plan No 94514 [2021] NSWCATAP 163: 21. As already mentioned, a touchstone of when it is appropriate to depart from the usual position of no order as to costs on a negotiated resolution is reasonableness (or otherwise) in commencing and continuing the litigation. In this process, variance of the negotiated outcome from offers embodied in what are called "calderbank letters" or other matters that can be taken into account on costs is a factor. 22. The principles governing calderbank offers, as with formal processes in court rules for offers of compromise, operate generally in relation to disputes, including those that contain an outcome embodying both conclusions reached by consent and by determination after contest. 23. The principles governing calderbank offers were set out in the reasons of the Appeal Panel in Thompson v Chapman [2016] NSWCATAP 6 at [91] in reliance upon authority in the NSW CA and Supreme Court there cited, to which can be added Hazeldene's Chicken Farm PL v Victorian Workcover Authority (No 2) (2005) 13 VR 435, [2005] VSCA 298, El-Wasfi v NSW; Kassas v NSW (No 2) [2018] NSWCA 27 and Croghan v Blacktown CC [2019] NSWCA 248 and authority there discussed. 24. In summary: the offer must constitute a real and genuine compromise; rejection must be unreasonable in the circumstances; reasonableness of rejection is to be assessed at the time the offer is made, not with the armchair of hindsight; relevant factors in assessing unreasonableness include the stage of the proceedings when the offer was made, time allowed to consider the offer, extent of compromise in the offer, the offeree's prospects in the litigation at the time the offer was made, clarity of terms of the offer, and whether an application for indemnity costs was foreshadowed in the event of rejection. 25. Absent submissions showing authority compelling the contrary, and consistent with the requirement of adequate time to consider the offer, any special costs orders made when an offer in a calderbank letter is taken into account ought logically to date from the expiry of the offer period, or from the date of the offer being rejected if that (as here) occurs within the offer period, rather than from the date of the offer itself.
In the offer letter the builder offered to undertake at its own cost the rectification works specified in Dr Amin's report, and "any other rectification work which may be required (the subject of opinion of [the respondent's expert] Mr Nash-Smith)"
I am not satisfied that the homeowner's failure to accept this offer justifies a departure from the usual order which applies when proceedings have settled without determination. The outcome ultimately achieved by the applicant was better than what was proposed in the offer letter, not least because the parties ultimately agreed that the works should be superintended at the builder's cost by an independent third party, and because the builder agreed to pay money to the homeowner for items in respect of which it did not accept liability. The homeowner did not at unreasonably by refusing to accept the offer.

Was there a capitulation or surrender?

The Tribunal does not regard the settlement of the proceedings as a "capitulation" or "surrender" by either party. It was clearly a compromise by both parties. For example: 1. the builder has compromised by agreeing to have the rectification works superintended at its cost, and to pay the homeowner a lump sum payment in respect of items for which liability is denied; 2. the homeowner has compromised by agreeing to the more limited rectification works proposed by the builder's engineer with regard to the retaining wall; and 3. both parties have compromised with regard to the building debris issue by agreeing that Mr Capaldi will determine at a later date whether or not the debris should be remedied by the builder.

Can it be said with certainty that either party would have obtained a costs order in their favour?

Further, it cannot be said "with certainty" that either party would have been "the successful party" had the proceedings been determined on the merits by the Tribunal, so that it cannot be known whether either party would have obtained an order for costs in their favour; whether there would have been no order for costs; or whether there would have been a proportionate costs order.
It is a matter of speculation as to what the outcome would have been. Although prior to the hearing there was considerable agreement between the experts as to what work was defective and how those defects should be rectified, the Tribunal still would have had to assess the evidence and make factual findings regarding the items that they disagreed upon including for example what, if any, works were required to be done in relation to the retaining wall. The Tribunal also would have had to decide whether to make an order for the works to be superintended by a third party. I observe in this regard that little time was spent on this issue at the hearing, and at the time the matter settled the parties had not yet provided written submissions addressing this issue.

Conclusion and orders

For these reasons I make the following orders: 1. A hearing on costs is dispensed with in accordance with s 50(2) of the Civil and Administrative Tribunal Act 2013 (NSW). 2. The parties' respective costs applications are dismissed. 3. Each party is to bear its own costs.

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: 22 September 2023

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