Grace v Pepe

NCAT Appeal Panel|2017-08-02

Solicitors: The Law Shoppe (Appellant) John Lloyd & Co. (Respondent) File Number(s): AP17/12425 Decision under appeal Court or tribunal: Civil and Administrative Tribunal Jurisdiction: Consumer and Commercial Division Citation: N/A Date of Decision: 13 February 2017 Before: G Meadows File Number(s): HB10/51266, HB11/08243

reasons for decisIon

This matter has a long history. It involves a dispute between the builder, Mr Grace (the appellant) and the home owners, Mr & Mrs Pepe (the respondents). We will refer to them as the builder and the home owners. There have been five previous hearings prior to this Appeal Panel hearing. There have been two contested hearings and one decision (now under appeal here) on the papers in the Tribunal, one appeal to the District Court and one earlier appeal to the Appeal Panel.
The builder commenced proceedings first (file number HB10/51266). The home owners cross-claimed in matter number HB11/08243. We will refer to these matters as HB10 and HB11. The matters were consolidated and heard together.
Our jurisdiction as the Appeal Panel is set out in s80(2)(b) CAT Act. This appeal concerns the third decision of the Tribunal concerning costs in these matters to determine whether: 1. there has been an error of law which vitiates the third Tribunal decision; and whether leave should be granted to appeal against the third Tribunal decision for reasons other than an error of law; and if so-whether the appeal should be allowed. 2. whether leave should be granted to appeal against the third Tribunal decision for reasons other than an error of law; and if so-whether the appeal should be allowed.

BRIEF HISTORY

It will assist to set out a brief history of this matter (adapting to some extent the "bare bones outline" used by the Senior Member in the third Tribunal decision under appeal at paragraphs 48 to 51).
The dispute has its origin in a building contract dated 6 March 2010. It was entered into between the builder and the home owners and involved alterations and additions at the home owners' existing residence.
There was a history of difficulties and disputes between the home owners and the builder. The builder had sent invoice number 9 to the home owners on 8 September 2010 which was disputed by the home owners.
The home owners then issued a "Notice of suspension of works" on 20 September 2010.
The builder then sent invoice number 10 to the home owners on 22 September 2010. On 4 October 2010 the builder filed an application (HB10) in the Tribunal claiming payment of invoices 9 and 10. Later the claim was expanded to damages for loss of profit.
The home owners issued a "Notice to rectify defects" to the builder on 24 December 2010. Claiming that the builder had failed to comply with that notice, the home owners purported to terminate the building contract on 8 February 2011.
On 11 February 2011 the home owners filed HB11 seeking relief from payment to the builder and amounts to cover completion of the work, and to rectify defects. The claim also extended to certain miscellaneous costs being $6,000.00 insurance excess, $1,540.00 reimbursement for wrongly claimed variations and $3,741.85 for alternative accommodation ("miscellaneous costs"). They also claimed damages for loss of amenity, inconvenience and distress. We refer to these various heads of claim as completion costs; rectification costs; miscellaneous costs; and damages.
After the proceedings were consolidated, the Tribunal commenced its first hearing on 6 December 2011. The home owners apparently were not ready on that day and an order was made for costs thrown away. This order is not in dispute. Order 1 below stands.
The hearing continued for one day on 7 December 2011 and was adjourned to 16 May 2012.
Relevant to this appeal the builder made an offer to settle the matter by a Calderbank letter of 2 May 2012 ("the first Calderbank offer"). The primary relevance of the first Calderbank offer is whether this Appeal Panel should admit it as new evidence on the appeal. We consider this question below.
Also relevant to this appeal, the builder made a second offer to settle on 15 May 2012 ("the second Calderbank offer") the day before the hearing resumed. The second Calderbank offer was rejected by the home owners. The relevance of the second Calderbank offer is the weight it should have been given by the Tribunal in its costs decision under review here.
The first Tribunal hearing continued on 16 to 21 May 2012 and 10 to 11 December 2012 (so 9 days in all).
The first Tribunal decision contained the following orders: "1. Matter HB10/51266 is dismissed. 2. In matter HB11/08243 the respondent is to pay the applicants the sum of $82,281.85 within 60 days of the date of these reasons."
At para [36] of the first Tribunal decision the orders were explained as follows: "36. Based on my other findings above, the net result is as follows: (a) the builder's claim is dismissed; (b) the builder is to pay the owners the sum of the following amounts: (i) $71,000.00 for completion and rectification of the works; (ii) $6,000.00 for insurance excess; (iii) $1,540.00 reimbursement for "packing" variations; and (iv) $3,741.85 alternative accommodation: $82,281.85 in total."
The builder appealed the first Tribunal decision to the District Court (P Taylor SC DCJ). The builder advanced 12 grounds of appeal asserting errors of law in the first Tribunal decision. These included grounds concerning the decision in the builder's proceeding (HB10/51266). The appeal occupied 3 days (26 to 28 November 2014).
The District Court found two errors of law had been made: 1. that the Tribunal erred in law in finding that the home owners suspension notice was a valid notice of suspension under the building contract; and 2. that the matters that existed at the time of suspension were sufficient to justify termination of the contract.
The suspension was held invalid. The first Tribunal decision to that extent involved an error of law. However the District Court stated that there was a question of whether termination was valid for reasons other than those given in the first Tribunal decision. For example whether the failure to comply with the notice to rectify justified termination of the contract. The District Court referred the matter back to the Senior Member for determination of the question. The orders made by the District Court at paragraph 101 were: 1. Allow the appeal. 2. Remit my decision on the questions set out in these reasons to the Tribunal and order a rehearing of the proceedings by the Tribunal pursuant to s67(3)(b) of the Consumer, Trader and Tenancy Tribunal Act 2001. 3. Order the costs of the appeal (excluding the plaintiff's costs of the first day of hearing) be costs in the Tribunal, to abide the determination by the Tribunal of the costs in the Tribunal. 4. By consent, grant liberty to either party to apply to this Court in respect of a Suitors' Fund Act 1951 Certificate, in respect of the costs of these proceedings, after the determination of the rehearing by the Tribunal.
The second Tribunal hearing was held on 26 November 2015. The second Tribunal decision was that the home owners' notice of rectification dated 24 December 2010 was valid, and the home owner's notice of termination of 8 February 2011 was also valid.
In accordance with that finding the second Tribunal decision was that there was no need to amend the orders made in the first Tribunal decision (see para [105]). The Tribunal went on in para [106] to [107] to say: 106. Should either party wish to make an application for costs, that party should provide written submissions in relation to costs within 14 days of the date of these orders. Any written submissions in reply should be made no later than 14 days thereafter. 107. A decision on costs will be made on the papers.
The builder then appealed the second Tribunal decision to the Appeal Panel. ([2016] NSWCATAP 157). The Appeal Panel hearing took place on 5 May 2016. The Appeal Panel found that the home owners' notice to rectify and notice of termination of the contract were not valid. The Appeal Panel also held that the home owners were not entitled to completion costs. The Appeal Panel stated that the home owners were entitled to rectification costs but found that these were unproven. (Para [42]). The Appeal Panel found that the miscellaneous costs were proven and made the following orders: "(1) Appeal allowed in part. (2) Quash orders made below and in lieu order that the builder, Sam Grace pay the owners, Anthony and Sophia Pepe the sum of $10,281.85. (3) No order as to costs."
The Appeal Panel stated (paras [42] and [43]) that the miscellaneous costs were 42. …items [that] total $10,281.85 and as it seems to us, constitute the only entitlement proved by the owners. 43. Although these proceedings have been unduly protracted and expensive we do not think that there are special circumstances within s60 of the Civil and Administrative Tribunal Act. Accordingly no order for costs should be made. In the various sets of proceedings each party has had a measure of success.
The orders of the Appeal Panel are now the substantive orders in this matter.
It is to be noted that the first Tribunal decision on the builder's claim, which was dismissed, was not disturbed by the District Court, the second Tribunal decision or the Appeal Panel decision.
In accordance with the directions regarding costs in the second Tribunal decision the matter returned to the Tribunal for determination of costs in the various proceedings. The third Tribunal decision was made on the papers on 13 February 2017.
The orders that were made in the third Tribunal decision were as follows: (1) Anthony and Sophia Pepe are to pay Sam Grace its costs thrown away of 6 December 2011; (2) In relation to matter number HB10/51266 Sam Grace is to pay the costs of Anthony and Sophia Pepe on the usual basis as agreed or assessed. (3) In relation to matter number HB11/08243 Sam Grace is to pay the costs of Anthony and Sophia Pepe on the usual basis as agreed or assessed. (4) In relation to both, HB10/51266 and HB11/08243, Sam Grace is to pay the costs of Anthony and Sophia Pepe of the District Court appeal proceedings 2013/308287.
The reasons for the third Tribunal decision can be summarised as follows: It is clear that the home owners did succeed in the three minor [miscellaneous] issues referred to by the internal Appeal Panel but also in relation to their entitlement to rectification costs, whatever the latter may be. In coming to that conclusion, I find that the home owners were largely successful and that the monetary outcome is not a reasonable measure of their success." (Paras [62] and [63]).
The Tribunal went on to say Because of the particular circumstances of these proceedings and specifically in relation to the internal Appeal Panel's findings as discussed above, I find the home owners failure to accept the builder's Calderbank offer was not unreasonable at the time of the offer (both because of the time the offer was left open for consideration nor on the basis of the available evidence) nor given the eventual monetary outcome, for the reasons discussed above.
The builder has appealed the third Tribunal decision to this Appeal Panel. This appeal was heard on 2 August 2017.

GROUNDS OF APPEAL

The grounds upon which the builder relies in his appeal are reproduced below:

"A"

Grounds of appeal in respect of the Costs Order by Senior Member Meadows dated 13 February 2017
The appellant Builder raises the following grounds of appeal, as of right: 1. The Appellant was denied procedural fairness in that: 1. The Tribunal failed to consider or refer to his submissions dated 25 November 2016 (and filed on 1 December 2016); 2. The Tribunal, in deciding the costs proceedings on the basis that "the monetary outcome is not a reasonable measure of [the homeowners'] success", failed to provide the Builder with any opportunity to make submissions in respect of that unusual and unargued basis. 1. The Tribunal failed to exercise its discretion judicially or reasonably, or in accordance with established Iegal principles, in that: 1. It failed (or failed properly) to have regard to or apply the legal and public policy principles underlying the Applicant's Calderbank offer of 15 May 2012; 2. It failed to apply the principles relating to ordering costs based on issues and the relative success of parties (as referred to in Bostick), particularly in circumstances where the discrete area in which the Owners succeeded: 1. (i) Regarding the 3 minor ancillary amounts, they consumed very Iittle of the time in any of the hearings; 2. (ii) Regarding the extent of rectification works, the Tribunal in 2013 accepted the Builder's expert's (Mr Austin) estimate of the rectification costs of $11,707, which amount the Builder advanced was the appropriate amount and which the Owners advanced was better than their own expert (Mr Morris), whom the Tribunal considered "significantly overestimated" the costs. 1. It failed to have regard (or to apply the principles) to the following facts and procedural history, that: 1. (i) The Builder's internal appeal was wholly successful (in that the Builder succeeded in having the Owners' purported termination of the Contract held to be invalid and the Builder obtained a better monetary result than even he had sought in that appeal); 2. (ii) By virtue of the Builder's successful internal appeal, the one issue with which the Tribunal had been concerned in the remittal proceedings, namely the validity of the Owners' purported termination of the Contract, the Builder is taken to have been wholly successful in the remittal proceedings; 3. (iii) The Builder was successful in the District Court proceeding, in having the proceedings remitted on the question of whether the Contract was validly terminated by the Owners. Given the Builder's success in the internal appeal and (constructive) success in the remittal hearing by reason of his success in the internal appeal on the issue remitted, the Builder's costs of the District Court proceedings must be referable to the parties' success or failure in the proceedings that followed (not preceded) it; 4. (iv) Its own acceptance of defective works (judgment of 17 September 2013) relied upon the figure of $11,707.00 being referable to defective works, which figure the Builder has accepted in each stage of proceedings (the Builder has succeeded on that issue as he never contested there being defective works to that value) ; 5. (v) The maximum the Pepes would have received in any of the stages of proceedings (once the Contract was found not to have been validly terminated) was $22,988, which the Appellant Builder accepted and which was half the amount offered by the builder in its Offer of Compromise of 15 May 2012; 1. It failed to have regard to the [Part "A" of the the grounds of end here]

"B"

Application for Leave
Outline of Grounds of appeal in respect of the Costs Order by Senior Member Meadows dated 13 February 2017
To the extent that leave is required because the issue does not amount to an error of law alone, the applicant Builder seeks Ieave to raise the following grounds of appeal on the basis that the order declining to make a cost order in the Appellant's favour was not fair and equitable: 1. The Tribunal failed to have regard (or to apply the principles relating to costs) to the following facts and procedural history, that: 1. The Builder's internal appeal was wholly successful (in that the Builder succeeded in having the Owners' purported termination of the Contract to be invalid and the Builder obtained a better monetary result than even he had sought in that appeal); 2. By virtue of the Builder's successful internal appeal, the one issue with which the Tribunal had been concerned in the remittal proceedings, namely the validity of the Owners' purported termination of the Contract, the Builder is taken to have been wholly successful in the remittal proceedings; 3. The Builder was successful in the District Court proceeding, in having the proceedings remitted on the question of whether the Contract was validly terminated by the Owners. Given the Builder's success in the internal appeal and (constructive) success in the remittal hearing by reason of his success in the internal appeal on the issue remitted, the Builder's costs of the District Court proceedings must be referable to the parties' success or failure in the proceedings that followed (not preceded) it; 4. Its own acceptance of defective works (judgment of 17 September 2013) relied upon the figure of $11,707.00 being referable to defective works, which figure the Builder has accepted in each stage of proceedings (the Builder has succeeded on that issue as he never contested there being defective works to that value) ; 5. The maximum the Pepes would have received in any of the stages of proceedings (once the Contract was found not to have been validly terminated) was $22,988, which the Appellant Builder accepted and which was half the amount offered by the builder in its Offer of Compromise of 15 May 2012. 1. Even if Tribunal finds that the Builder's Calderbank letter does not permit him to have his costs on an indemnity basis (which is not conceded by the Builder), a fair, just and reasonable application of principle to the facts, procedural history and genuine offer made by the Builder (which more than tripled the monetary award in favour of the Owners and more than doubled the monetary award they could have received if a quantified amount was allowed for rectification costs) should Iead to the Builder having his costs paid at least on the ordinary basis from 15 May 2012.

GUIDING PRINCIPLES

In considering this appeal we are guided by the following considerations: 1. Costs decisions are matters for the discretion of the Court or Tribunal, which must be exercised judicially [Oshlack v Richmond River Council [1998] HCA 11 at [21-22]. 2. Where there is a mixed outcome apportionment is discretionary and mathematical precision is illusory. If a party loses on an issue which took up considerable time, but is otherwise successful it may be appropriate to deprive that person of a portion of their costs Bostik Australia Pty Ltd V Liddiard (No 2) [2009] NSWCA 304 at [38]. 3. The Appeal Panel must take a sensible and balanced approach and not seek perceived errors with an eye keenly attuned to such (Politis v FCT (1988) 16 ALD 707 at 708) and not be overly pedantic . 4. The Appeal Panel should not interfere merely because, on its view of the evidence, it might come to a different conclusion (Fitz-Gibbon v Inspector General in Bankruptcy (2001) 180 ALR 457 at 484). 5. The Appeal Panel should only grant leave to appeal if there has been a substantial miscarriage of justice (i.e. there was a significant possibility that a more favourable result would have been achieved) because the result is unfair or inequitable, or against the weight (by a strong preponderance) of evidence (Collins v Urban [2014] NSWCATAP 17).
We are also guided by the following general principles which guide the exercise of the discretion regarding costs in the usual case: 1. that each of the various proceedings should be given separate consideration in deciding costs - although after separate consideration the overall result may also be taken into account where proceedings are consolidated; 2. that costs should ordinarily follow the event; and 3. that due consideration must be given to formal offers (for example Calderbank offers) to settle proceedings which take account of the timing and terms of such offers in the particular context.
In this case we accord particular weight to the fact that the same Senior Member presided over all three Tribunal matters. This put the Senior Member in a unique position to determine the relative positions of both parties when it comes to costs. The Senior Member was fully informed of the facts, including the manner in which each party behaved throughout the dispute, the submissions of the parties, the performance of the witnesses and so forth. It must also be noted that the appeals against the first and second Tribunal decisions went in favour of the builder.

CONSIDERATION

In considering the grounds of appeal against the third Tribunal decision, we will follow the principle that each matter (HB10/51266 and HB11/08243) be considered separately. The Senior Member recognised this as a correct principle at paragraph [43] of the third Tribunal decision.
The Tribunal's power to award costs in this case is to be found in s53 of the Consumer, Trader and Tenancy Tribunal Act 2001 (CTTT Act) and Clause 20 of the Consumer, Trader and Tenancy Tribunal Regulation 2009 (CTTT Regulation); and s60 of the Civil & Administrative Tribunal Act 2013 and Clause 38 of the Civil and Administrative Tribunal Rules 2014. In each case the Tribunal may award costs in relation to proceedings where the amount claimed or in dispute is more than $30,000.00 with no need to establish either "exceptional circumstances" under the CTTT Legislation or "special circumstances" under the NCAT Legislation.
We begin by considering whether there was an error of law which infected the costs decisions in each of the two matters.

Ground A 1(a)

Ground A 1(a) asserts the Tribunal failed to consider or refer to the builder's submissions dated 25 November 2016 and filed on 1 December 2016.
In paragraph [15] of the third Tribunal decision the Senior Member states that he has been provided with home owners' first submission on 21 October 2016, builder's submissions on 9 November 2016 and home owners' submissions in reply on 23 November 2016. The builder's second set of submissions were filed but it is not clear whether the Tribunal actually had those submissions before it and if it did not why this occurred.
The builder's second set of submissions responded to the home owner's submissions in reply.
The costs application appears to have been initiated by the home owners and this seems to be the reason that, in accordance with the usual NCAT practice, the home owners put on their submissions first, the builder put on his submissions after theirs and the home owners were given an opportunity to reply. There is on the face of it nothing to prevent the builder filing a second set of submissions in reply to the home owner but it does not appear that the builder was directed to do so, and it is not part of usual NCAT practice.
We have read the builder's second set of submissions. In summary the builder's second set of submissions states that it is unacceptable to attempt to go behind the Appeal Panel's decision by alleging that it is "demonstrably perverse"; that the home owners cannot rely on their own impecunity as a reason for not appealing the Appeal Panel decision; and that the owners made exaggerated claims in HB11 for completion costs which were dismissed on appeal by the Appeal Panel. There is also reference to the behaviour of the owners in unlawfully suspending the contract and invalidly terminating the contract; and to the fact that the builder accepted certain amounts for rectification costs and miscellaneous costs would be reasonable.
In the first set of builder's submissions some of the same points were made about the unlawful and invalid actions of the home owners and noted that the builder had been successful before both the District Court and the Appeal Panel and made submissions concerning the second Calderbank offer.
The home owners submitted that it was implicit in the third Tribunal decision that the builder's second set of submissions had been taken into account. This submission was made orally before us.
A fair reading of the decision, together with the failure of the Tribunal to mention the builder's second set of submissions at paragraph [15], does not persuade us that the Tribunal had those submissions before it. However, the Senior Member was well aware of the matters referred to in the builder's second set of submissions without needing them in writing. There was no "killer point" in the second set of submissions of which the Tribunal was unaware.
We do not consider the builder's second set of submissions would have led the Tribunal to come to a substantially different conclusion in the third Tribunal hearing. We do not consider there has been a denial of procedural fairness by failing to take account of the written version of the builder's second set of submissions in respect of either HB10 or HB11. Therefore an error of law has not been shown.

Ground A 1(b)

As to Ground A1(b) the Appeal Panel is asked to find that it was an error of law for the Tribunal to come to the conclusion that the monetary outcome was not a reasonable measure of the home owners' success. We assume that the Tribunal was directing its mind to HB11, though this is not clear from the reasons. We note of course that the Senior Member had heard all three Tribunal matters. However it appears to us that the Senior Member was taking into account the success that the home owners had had in defeating the builder's claim in HB10, and as we stated above it is necessary for each matter to be considered separately in the first instance. We do not see sufficient reasons given in the Tribunal's decision for this approach to be applied (i.e. taking account of the matter overall) without considering in more detail the position of the parties in each of the two proceedings. We appreciate the position of the builder, who could rightly claim that he does not understand the basis of the decision as it was not argued on that approach. We would therefore hold that there was an error of law involved.

Ground A 2(a)

As to Ground A 2(a) - that the Tribunal failed or failed properly to have regard to the legal and public policy principles underlying the builder's Calderbank offer of 15 May 2012, it is appropriate to draw attention to another aspect of this argument.
The builder had made an earlier Calderbank offer (the first Calderbank offer of 2 May 2012) before the builder's second Calderbank offer of 15 May 2012. The letter making the first Calderbank offer was not in evidence in the third Tribunal hearing. The builder sought to introduce the first Calderbank offer as new evidence in this appeal. The home owners opposed the application.
The failure to tender the first Calderbank offer at the Tribunal hearing was explained by the builder's counsel as an oversight due to changes of solicitors for the builder and a late discovery of the first Calderbank offer.
The home owners' counsel submitted that the explanation was inadequate because the builder had retained the same counsel throughout the proceedings, and that the second Calderbank offer (in para 3 of the letter) had specifically referred to earlier "without prejudice" communications dated 1 and 2 May 2012.
We accept the argument of the home owners on this point. The builder was aware of the existence of the first Calderbank offer and failure to tender it below was in effect a forensic choice. However we do not consider that the tendering of the first Calderbank letter before the Tribunal, or admitting it as new evidence in this appeal would materially advantage the builder. The second Calderbank offer is more relevant and significant as it offers a greater amount payable by the builder than the first Calderbank offer.
The more salient issue is whether there was an error of law by the Tribunal in its consideration of the second Calderbank offer in reaching its decision on costs.
The essential terms of the second Calderbank offer are as follows: "...we are instructed to make one final offer on behalf of our client in order to bring finality to these proceedings once and for all. This offer of compromise is made having regard to the content of our earlier "without prejudice" communications dated 1 and 2 May 2012. As already made verbally and by email from our client's counsel to yours, our client makes the following offer, which is open for acceptance by your client until 4.00pm today, 15 May 2012: 1. each of the Application and Cross-Application in matters HB10/51266 and HB11/08243 are dismissed; 2. without admission as to liability, Mr Grace to pay the amount of $35,000.00 to Mr & Mrs Pepe (within 28 days of acceptance); 3. all costs orders already made are vacated; 4. parties to enter into a Deed of Settlement and Release reflecting the agreement reached, including mutual releases, non-disparagement and non-disclosure clauses; 5. each party is to bear their own costs of the proceedings and the drafting of any Deed of Settlement and Release."
The offer was made under Calderbank principles.
The third Tribunal decision under appeal here sets out the competing arguments of the parties so far as the second Calderbank offer at paras [33] and 34. The Tribunal's consideration of the second Calderbank offer is found at paras [64] to [66].
After quoting from the judgment of Giles JA in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 the Senior Member "…I find that in this case the fact that the home owners ended up "worse off" in monetary terms does not result automatically in an order that they should pay the costs of the builder or that they are not entitled to their own costs. 66. Because of the particular circumstances of these proceedings and specifically in relation to the internal Appeal Panel's findings as discussed above,I find the home owners' failure to accept the builder's Calderbank offer was not unreasonable at the time of the offer (both because of the time the offer was left open for consideration nor on the basis of the available evidence) nor given the eventual monetary outcome, for the reasons discussed above."
We note in relation to the internal Appeal Panel's findings 'as discussed above' in the third Tribunal decision, that this appears to refer to the position that there had been no specific finding regarding the amount of rectification costs. We further note as to the time the offer was left open for consideration that no extension had been requested although this course was open; also the reference in the above passage in the third Tribunal decision to the 'available evidence' is cryptic; as are the references to the 'particular circumstances of these proceedings' and the 'eventual monetary outcome'. The reasoning of the Tribunal is opaque. Before us the builder argued that the Tribunal had erred by misapplying the Calderbank principles in a case where the builder had had his claim dismissed and the home owners had been found entitled to only a little over $22,000.00.
In reply the home owners argued that the Tribunal was best placed to judge the application of the Calderbank principles in the particular circumstances.
When we look at the terms of the second Calderbank offer it can be seen that it is cast as a "global settlement" of both HB10 and HB11. We see that some of the terms are directed at HB10 and some at HB11.
The second Calderbank offer referred to previous settlement communications from both sides, and was said to be "one final offer" by the builder. It was made the day before the first Tribunal hearing was to recommence. There had already been one day's hearing in December 2011. We do not consider the timing of the offer in the second Calderbank offer was unreasonable in the context of settlement communications passing between the parties over the previous 2 weeks before the restarting of the hearing.
Nor do we consider it unreasonable for the builder to set a time limit for acceptance of the offer of 4.00pm on the day it was made. The home owners could have but did not request an extension of time to consider. It is our view that the terms of the second Calderbank offer were sufficiently clear.
The builder offered to abandon his claims in HB10, and his entitlement to costs thrown away of day 1 of the first Tribunal hearing.
However the builder proposed that each party pay their own costs of both proceedings. The home owners had no doubt incurred costs in defending HB10. These had been commenced by the builder.
The builder also offered to pay the home owners the amount of $35,000.00 within 28 days of acceptance of the offer. We see this offer as directed to settling HB11. The offer was in a "global" form and so needs to be read beside the offer to settle HB10, and in the context of each party to bear their own costs in both matters.
The issue is whether the Tribunal made an error of law in its consideration of the weight and relevance to be given to the second Calderbank offer as applicable to each matter. It is our view that the Tribunal gave inadequate reasons for its decision to wholly discount the second Calderbank offer. We test whether this was an error of law as follows. 1. It is not enough to give as reasons those given in paragraph [66] of the Tribunal's decision and to treat the Calderbank letter (despite being framed as a global offer) as equally applicable to both matters even though it was expressed as such. In each case the matter needed to be separately considered in light of Calderbank principles in our opinion. 2. Although it is always hard to judge what the prospects of success of an offeree are until all the evidence has been tested before the Tribunal, the home owners could have felt fairly confident of defeating the builder's claim against them on 15 May 2012. 3. The offer by the builder to abandon his claim against the home owners in HB10 (and also his entitlement to costs thrown away) was a significant compromise. 4. However the builder's failure to make an offer towards the home owners costs when he was prepared to abandon his claims on them tells against according too much weight to the second Calderbank offer so far as HB10 is concerned. 5. The first Tribunal decision dismissed the builder's claims in HB10 and that result remained undisturbed through the appeal to the District Court, the rehearing and the appeal to the Appeal Panel.
Bearing all of this in mind it is our view that although the Tribunal's reasons for discounting the second Calderbank letter were inadequate that as regards HB10 the result was correct, largely because the builder did not make a reasonable offer towards the home owner's costs in HB10 which he had commenced against them in circumstances which did not do him credit.
We would therefore confirm in respect of HB10 order 2 of the Tribunal below subject to the following: 1. Each of the first Tribunal hearing, the District Court appeal, the second and third Tribunal hearings and this appeal will need to be examined to determine what proportion of the costs related to HB10 to be agreed or assessed.
The Appeal Panel's third order was "(3) No order as costs". The reason given was that the Appeal Panel did not think there were special circumstances within s60 of the CAT Act and accordingly there was no order for costs that should be made (paragraph [51]). As the amounts claimed or in dispute were in excess of $30,000.00 the special circumstances qualification did not apply. We would read the Appeal Panel's third order to cover only the costs of that hearing as did the Senior Member below (para [38]).
As to HB11 the offer by the builder to pay $35,000.00 to the home owners to settle HB11 represented a reasonably significant compromise on behalf of the builder. The home owner's prospects in their cross-appeal at that time have now been proven by the decisions in this matter to have been poor in regard to the completion costs (and damages), but better in relation to rectification costs, and good so far as the miscellaneous costs are concerned which were ultimately awarded by the Appeal Panel. But the time for judging these matters was at the time the second Calderbank offer was open.
As to the rectification costs although the home owner's expert (Mr Morris) made a high initial estimate, he reduced it considerably in a revised report, and ultimately he appeared to agree in a conclave to accept a significantly lower figure determined finally to be $11,707.00.
In their own submissions to the first Tribunal hearing (para 122) the home owners accepted that the rectification costs should be found to be $33,307.00 a figure below, but not far below, the amount offered in the second Calderbank letter.
In the first Tribunal decision no separate amount was ordered to be paid for rectification works as distinct from the completion costs. The Senior Member remarked that the home owners accepted that their expert's figures needed to be adjusted downwards (para [31]).
It will also be recalled that the Appeal Panel's decision was that the home owners had only proved losses of $10,281.85. The Appeal Panel did accept that the home owners were entitled to rectification costs but because they were unproven the Appeal Panel made no order regarding them.
Putting the second Calderbank letter to one side, if costs were to follow the event in HB11 home owners would expect to be able to recover their costs at first instance as they were largely successful on the issues there if not the quantum.
The builder's appeal to the District Court was successful to a degree. The District Court did not disturb the orders of the first Tribunal decision so far as HB10 was concerned. The District Court made orders that the costs of the appeal (excluding the plaintiff's costs of the first day of the hearing) be costs in the Tribunal to await determination by the Tribunal of those costs. (Order 3).
The District Court also granted liberty to apply for a Suitors Fund Act Certificate.
At the second Tribunal hearing the home owners were successful again and at that point costs would presumably have been awarded in their favour.
However the Appeal Panel quashed the order so far as completion costs (which included rectification costs) but made no order as to costs. If the costs were to follow the event presumably the home owners would still be entitled to a fair proportion of their costs before the appeal stage, though possibly discounted by reason that they were only partly successful (as the claim for completion costs failed).
In the present case we have found the builder to be successful in establishing an error of law on the costs issue in HB11 because of the failure to properly consider the Calderbank letter and give reasons for discounting it, and in the reasons for decision relating to the monetary outcome not reflecting the home owners' success.
In the substantive proceedings the home owners were found entitled to rectification costs in addition to the miscellaneous costs, but were found not to have proven the rectification costs though both parties ultimately agreed on the amount, and so they were not included in the orders made by the Appeal Panel.
Now, taking account of that position in the light of the second Calderbank offer we find that the rectification and miscellaneous costs totalled a little over $22,000.00 and were entitlements of the home owners. But they were still considerably less than they claimed and somewhat less than was in the second Calderbank offer ($35,000).
We also take into consideration that the builder made no offer as to the costs of the home owners in HB11 even though he conceded that rectification and miscellaneous costs were recoverable (but were subject to quantification).
We consider that in the circumstances it was not unreasonable to reject the builder's offer in the second Calderbank offer because no offer was made in respect of home owners' costs where the builder recognised that the home owners had certain valid claims and should have recognised that they had incurred costs relating to them.
We then take into account the contextual factor that there had also been no offer of costs in HB10 where the home owners had good prospects of success and had incurred costs for which no offer was made.
True it is that the amount of the offer might be seen as including a component for costs in HB11 when the ultimate entitlement of the homeowners was determined. It was not expressed in that way in the offer. Even though the $35,000 offer exceeds the homeowners' $22,000 odd ultimate entitlement this is not the end of the matter. The issue of costs needed to be addressed more appropriately in the second Calderbank offer.
We find the homeowners could on an objective view have expected to succeed in some degree and had incurred costs in relation to both proceedings: one in which the builder was found to be not entitled at all, and the other where the homeowners were vindicated to some extent. The second Calderbank offer could not, in our view, justify an award of costs in HB 11 to the builder on an indemnity basis as was submitted, nor on the usual basis either. It was inadequate to put the builder in that position.
Weighing these Calderbank matters with other factors including: 1. that the same Senior Member had carriage of the all the Tribunal decisions and although we have found there were errors in the reasoning process as expressed in the costs decision, the Senior Member was in a good position to judge the relative merits of each side of the argument, and we would not wish to interfere in the exercise of the costs discretion lightly; 2. the Appeal Panel found that the owners were "in very serious breach of their obligations under the contract" (para [36]) and had made dire threats to the builder if it returned to the site in breach of the notice (see para [36]). The District Court also found that the owners were in breach of contract by issuing the notices of suspension of works and excluding the builder from the site (para [38]); 3. the owners appear to have been unreasonable by issuing the notice to rectify on Christmas Eve knowing that it would be very difficult to comply; 4. that the builder had also been in breach of contract and principles of fair dealing by sending invoices to which he was not entitled and suspending work to force payment of invoices; 5. that some of the home owners' actions appear to be in response to the actions of the builder in 'starting the battle' by issuing the invoices for amounts to which he was not entitled; 6. that there were considerable elements of "fault" on both sides; 7. that the parties do have liberty to apply under the Suitors Fund Act in relation to costs in the District Court; 8. that the builder acknowledged liability for rectification and miscellaneous costs which the homeowners ultimately accepted; 9. that the first Appeal Panel found the homeowners to be entitled to rectification costs but they failed to prove the quantum; 10. that the claim for completion costs was wholly unsuccessful and appears to have taken up a not inconsiderable amount of time; and 11. that the builder had two appeals allowed.
When the second Calderbank offer and the other factors are all weighed in the balance (particularly the time consumed in the homeowners' bold but unsuccessful completion costs claim), and given the ultimate result in the first Appeal Panel, we are of the view that an appropriate response is that the homeowners, despite their success, should not receive an award of costs in HB11.
As we have found there were errors of law in relation to HB11 we do not need to consider the application for leave.

Orders 1. The appeal is allowed in part. 2. Order 1 below is confirmed. 3. In HB10/51266 Order 2 of the Tribunal below is confirmed subject to the following: 1. Each of the first Tribunal hearing, the District Court appeal, the second and third Tribunal hearings and this appeal will need to be examined to determine what proportion of the costs related to HB10/51266 to be agreed or assessed. 2. The Appeal Panel's third order was "(3) No order as costs". We read the Appeal Panel's third order to cover only the costs of that hearing. 1. In HB11/08243 we order that Orders 3 and 4 below be set aside and in substitution the following order is made: 1. Each party pay their own costs (noting that Suitors Fund assistance could be available for the District Court matter);

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: 23 May 2018

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