Hertslet v Doherty; Doherty v Hertslet

NCAT Appeal Panel|2015-10-26

Introduction

Homeowners Peter Doherty and Jane Swinhoe and contractor, Douglas Hertslet, were in dispute about a kitchen that had been installed. Each made a claim against the other. The contractor claimed that the homeowners owed him $12,829 under the contract (HB 13/34899). The homeowners' alleged that the kitchen was defective and sought $52,000 to rectify the defects (HB 13/50846).
On 8 December 2014, the day of the hearing before the Consumer and Commercial Division of the Tribunal, the parties settled their entire dispute. Each was represented by a lawyer. The basis of the settlement was that the contractor would pay the homeowners $32,000 in three instalments and deliver certain cut pieces of Calcutta marble. The deed noted that the issue of costs was reserved. Each party applied for costs and made written submissions in support of their application.
The Tribunal made the following orders: 1. The respondent (contractor) is to pay the applicants' costs on the ordinary basis as agreed or assessed. 2. The respondent's application for costs of issuing the summons on the applicant's expert is dismissed.
The contractor has appealed from the Tribunal's decisions that he pays the homeowners' costs on the ordinary basis as agreed or assessed (AP 15/41467). The homeowners cross-appealed claiming that the Tribunal should have made an order that the contractor pay their costs on an indemnity basis, not on the ordinary (party/party) basis (AP 15/42967).

Outcome

We have concluded that in determining the homeowners' costs application, the Tribunal applied the legal principles relevant to a costs application following a contested hearing instead of the principles applicable when the proceedings have settled. In addition, the Tribunal failed to address the homeowners' application for indemnity costs. Having identified those errors of law, we decided to deal with the appeals by way of new hearings and re-determine the costs applications ourselves: Civil and Administrative Tribunal Act 2013 (NSW) s 80(3).
Where proceedings settle the general rule is that each party should pay their own costs. There are at least three exceptions: 1. where one of the parties has acted so unreasonably that the other party should obtain the costs of the action; 2. where the court is confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried; 3. where the court is confident that, although both parties have acted reasonably, the consent orders agreed to by the parties amount, in effect, to a capitulation by one of the parties.
None of those exceptions applies in this case. A further relevant consideration to take into account in these proceedings is the fact that the settlement was of two claims, one by the contractor for unpaid money and the other by the homeowners for defective work. In all the circumstances we are satisfied that there should be no order as to costs in either proceeding. It follows that there can be no order on an indemnity basis.

Application to disqualify member for apprehended bias

The contractor applied for Senior Member Goldstein to disqualify himself for apprehended bias. The basis for that application was that on 27 May 2014, when the matter was before the Consumer and Commercial Division, Senior Member Goldstein vacated the hearing date because the contractor had not served any evidence. Senior Member Goldstein also ordered the contractor to pay the homeowners' costs of $4,154. The Senior Member then made detailed directions and interlocutory orders to prepare the matter for hearing.
Senior Member Goldstein gave the following written reasons for granting the adjournment and ordering costs at [13]: "I granted the adjournment sought by the supplier/installer pursuant to section 28 (5)(f) of the Consumer, Trader and Tenancy Tribunal Act because I formed the view that if the adjournment was denied the supplier/installer would have suffered substantial injustice as he would be unable to present his case properly as a result of his failure as a self-represented party to comply with the requirements imposed upon him by the Tribunal's orders of 28 October 2013, as extended. Further, although the adjournment was a disappointment to the owner, I considered that any harm to him as a result of the adjournment could so far as possible be overcome by the grant of a costs order in his favour. The owner's solicitor sought an order for the costs of the adjournment."
The general test for apprehended bias is whether a fair-minded lay observer might reasonably apprehend that the judge might not bring an impartial mind to the resolution of the question the judge is required to decide: Johnson v Johnson (2000) 201 CLR 488 at [11], affirmed in Ebner v Official Trustee in Bankruptcy [2000] HCA 63; (2000) 205 CLR 337 at [11]. The two step process involved was explained by the High Court in Ebner v Official Trustee in Bankruptcy in the following way at [8]: First, it requires the identification of what it is said might lead a judge (or juror) to decide a case other than on its legal and factual merits. The second step is no less important. There must be an articulation of the logical connection between the matter and the feared deviation from the course of deciding the case on its merits. The bare assertion that a judge (or juror) has an "interest" in litigation, or an interest in a party to it, will be of no assistance until the nature of the interest, and the asserted connection with the possibility of departure from impartial decision making, is articulated. Only then can the reasonableness of the asserted apprehension of bias be assessed.
For a decision-maker to disqualify himself or herself for apprehended bias, there must be an objective connection between the facts and circumstances said to give rise to the apprehension and the asserted conclusion that the decision-maker might not bring an impartial mind to bear on the issues that are to be decided: Michael Wilson & Partners Ltd v Nicholls (2011) 244 CLR 427 at [67] Gummow ACJ, Hayne, Crennan and Bell JJ.
A decision maker has an obligation to hear and determine the matter unless reasonable apprehension of bias can be established: Ebner v Official Trustee in Bankruptcy [2000] HCA 63 at [19]; Bienstein v Bienstein (2003) 195 ALR 225 at [35]-[36]
An application for disqualification should be determined by the decision-maker whose disqualification is sought, and should not involve a contest on the facts: Australian National Industries Ltd v Spedley Securities Ltd (in liq) (1992) 26 NSWLR 411 at 436; Wentworth v Graham [2003] NSWCA 240.
Where a decision-maker has made findings in related proceedings which are critical of the recollection, credit and behaviour of those who are also parties to a case in which the same issues of fact and credit would arise for determination, it may be that the decision maker should disqualify him or herself: Livesey v NSW Bar Association (1983) 151 CLR 288. This is not such a case. The granting of the contractor's application for an adjournment could not give rise to an apprehension of bias against the contractor. The only matter identified by the contractor which could possibly form the basis for an application for disqualification is the fact that the Tribunal made a costs order against the contractor.
Where the "normal" costs rule applies, costs are not to be awarded by way of punishment of the unsuccessful party. In Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534 Mason CJ said at 543 that: If one thing is clear in the realm of costs, it is that, in criminal as well as civil proceedings, costs are not awarded by way of punishment of the unsuccessful party. They are compensatory in the sense that they are awarded to indemnify the successful party against the expense to which he or she has been put by reason of the legal proceedings …
Senior Member Goldstein awarded costs to indemnify the homeowners for the costs incurred because the proceedings were adjourned. That order was an entirely orthodox one in the circumstances. There is no logical connection between that order and "the feared deviation from the course of deciding the case on its merits". The contractor's application for Senior Member Goldstein to disqualify himself for bias is refused.

Appeal Panel's jurisdiction

A decision "concerning the awarding of costs in proceedings" is an "ancillary decision": Civil and Administrative Tribunal Act 2013 (NSW) (NCAT Act), s 4. A party may appeal from such a decision "as of right on any question of law, or with the leave of the Appeal Panel, on any other grounds": NCAT Act, s 80(2)(b).
The Civil and Administrative Tribunal was established on 1 January 2014. The Tribunal was given jurisdiction over matters, such as the present matter, that had been commenced in the Consumer, Trader and Tenancy Tribunal. This matter was heard on 8 December 2014, but the proceedings were nevertheless "unheard proceedings:" NCAT Act, Sch 1, cl 7. As such, while NCAT has jurisdiction to determine the application, the provisions of any Act, statutory rule or other law that would have applied to or in respect of the proceedings … continue to apply": NCAT Act, Sch 1, cl 7(3)(b).

Tribunal's decision

The Tribunal correctly identified the source of its power to make a costs order as being s 53 of the Consumer, Trader and Tenancy Tribunal Act 2001 (repealed) (CTTT Act). The general rule in relation to costs in proceedings before the Consumer, Trader and Tenancy Tribunal was that each party is to pay their own costs.
Clause 20(4) of the Consumer, Trader and Tenancy Regulation 2009 (NSW) (repealed) modified the general rule in relation to any proceedings in respect of which the amount claimed or in dispute was more than $30,000: (1) This clause applies to the awarding of costs by the Tribunal as provided by section 53 of the Act. … (4) In any proceedings in respect of which the amount claimed or in dispute is more than $30,000, the Tribunal may award costs in relation to the proceedings in such circumstances as it thinks fit.
The Tribunal noted that despite an offer by the homeowners to settle the claims in September 2013, the dispute ran on for almost 2 years. The Tribunal came to the following conclusion at [46] - [47] in relation to the homeowners' application for costs: An order for costs indemnifies the successful party for costs reasonably incurred in connection with litigation. In matters where there is no hearing on the merits, costs are awarded by reference to the practical result of the particular claim: Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA. I am satisfied that in this matter, having in mind the practical result and the wide discretion given to the tribunal, the homeowners are entitled to a costs order.
In summary, the Tribunal's decision that the contractor should pay the homeowners' costs was based on two considerations. The first was that despite an offer by the homeowners to settle the claims in September 2013, the dispute ran on for almost two years. The second was that, based on the decision in Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 (Doppstadt Australia) costs should be awarded by reference to the 'practical result' of the particular claim. In the Tribunal's view, the 'practical result' was that the homeowners were successful. Consequently, the contractor should have to pay their costs.
We understand the Tribunal's reference to the 'practical result' of the particular claim to be a reference to [14] and [15] of the decision in Doppstadt Australia: 14. The starting position is s 98 of the Civil Procedure Act 2005 (NSW) which provides that, subject to the rules of court, costs are in the discretion of the Court including, by whom, to whom, and to what extent costs are to be paid. Next, reference should be made to the Uniform Civil Procedure Rules 2005 (NSW) r 42.1 which provides that, if the Court makes any order as to costs, it should be in terms that costs follow the event unless the circumstances justify some other order. 15. Depending on the nature of the litigation the "event" may be characterised in more than one way. The authorities were reviewed by Ward J in Australian Receivables Ltd v Tekitu Pty Ltd [2011] NSWSC 1425 at [24]- [26], [54]-[60]. Generally the "event" refers to the event of the claim or counterclaim, as the case may be, and may be understood as referring to the practical result of a particular claim: Windsurfing International Inc v Petit [1987] AIPC 90-441 at 37,861-37,862 (Waddell J). (Emphasis added.)
In relation to the contractor's application for costs, the Tribunal agreed with the homeowners' submission that the person at whose request a summons is issued is required to pay the recipient's reasonable expenses of complying with the summons. Any default by their expert, Mr O'Donnell, in complying with the summons cannot be attributed to the homeowners. In addition the Tribunal noted that the summons was never formally called upon.

Nature of appeal

On a question of law appeal, the exercise of a statutory discretion such as that in cl 20(4) of the CTTT Regulation can only be overturned in limited circumstances: House v The King [1936] HCA 40; (1936) 55 CLR 499 at 505-506. Those circumstances were summarised by the Court of Appeal (Beazley P, Emmett JA and Tobias AJA) in Hannaford v Commonwealth Bank of Australia [2014] NSWCA 297 at [14]. The Court held that any attack on a discretionary decision must fail: "Unless it can be demonstrated that the decision maker: (a) made an error of legal principle, (b) made a material error of fact, (c) took into account some irrelevant matter, (d) failed to take into account, or gave insufficient weight to, some relevant matter, or (e) arrived at a result so unreasonable or unjust as to suggest that one of the foregoing categories of error had occurred, even though the error in question did not explicitly appear on the face of the reasoning."

Grounds of appeal

The contractor initially appealed on nineteen grounds. These grounds were later reduced to nine grounds. During the course of the hearing, it was agreed that there were two grounds of appeal: 1. the Tribunal applied the principles relating to the awarding of costs following a contested hearing, rather than the principles applicable when the proceedings have settled; and 2. the Tribunal breached the rules of procedural fairness by either: 1. failing to ask the parties whether they objected to the Member determining the costs application as required by NCAT Procedural Direction 3; or 2. determining the costs application when the Member had conducted a conciliation between the parties which had resulted in the settlement of the claims.

Application of incorrect principles

The Tribunal applied the principles applicable to costs following a contested hearing rather than those applicable to costs when the proceedings have been settled. Unlike the Doppstadt Australia litigation, which began with a contested hearing and a decision on the merits, the proceedings in this case were settled. The principles applicable when determining costs when proceedings have settled are those set out by the High Court in Re Minister for Immigration and Ethnic Affairs (Cth); Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at [6] to [9]: 6. In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. 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 costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. 7. 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. 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 reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd 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. 8. 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 The South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 per cent 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. 9. 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.
The exceptions to the general rule that each party pay their own costs when proceedings have settled were expressed in the following way by Ball J in Transfield Services (Australia) Pty Limited v James Gaha [2012] NSWSC 865 at [27]: There are, however, two exceptions to that general principle. One is where one of the parties has acted so unreasonably that the other party should obtain the costs of the action. The other is where the court is confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried: Lai Qin at 624-5. One instance where the court may be satisfied that that is the position is where the consent orders agreed by the parties amount, in effect, to capitulation by one of the parties.
Another Supreme Court Justice, Harrison J, recently listed the following three exceptions to the general rule in Farah v Elias [2015] NSWSC 1417 at [18]: 18. Costs will ordinarily be awarded to a party where the Court can find that: (1) One party has acted unreasonably in prosecuting or defending the action; (2) One party was almost certain to have won had the case been tried; (3) One party has effectively surrendered to the other.
We have adopted this characterisation of the exceptions. Consequently, the principles the Tribunal should have applied were as follows: 1. The general rule is that the Tribunal has power to order costs "in such circumstances as it sees fit": CTTT Regulation, cl 20(4). 2. Where proceedings are settled and no order for costs has been agreed, it is generally appropriate that each party bear their own costs: Re Minister for Immigration and Ethnic Affairs (Cth); Ex parte Lai Qin [1997] HCA 6 at [7]- [9]; (1997) 186 CLR 622 at 624-5 per McHugh J. 3. There are at least three exceptions to the principle in (2) above: 1. where one of the parties has acted so unreasonably that the other party should obtain the costs of the action; 2. where the court is confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried; 3. where the court is confident that, although both parties have acted reasonably, the consent orders agreed to by the parties amount, in effect, to a surrender or capitulation by one of the parties.
These categories are not closed. A further relevant consideration to take into account in these proceedings is the fact that the settlement was of two claims, one by the contractor for unpaid money and the other by the homeowners for defective work.
In addition, indemnity costs may be awarded if the principles established in Calderbank v Calderbank [1975] 3 All ER 333 are met. Those principles and their application was expressed in the following way in Transfield Services (Australia) Pty Limited v James Gaha [2012] NSWSC 865 at [28]: 28. In addition to these principles, it may be appropriate in accordance with the principles established in Calderbank v Calderbank [1975] 3 All ER 333 to make a special costs order in relation to costs incurred after one party has made an offer of compromise and the other party has ultimately done no better than that offer. However, it is doubtful whether those principles add anything in the context of this case. The relevant question in this case is whether Transfield Services acted unreasonably in pursuing its case having regard to the position taken by Mr Gaha. That question turns on whether it was unreasonable to pursue the case in circumstances where Mr Gaha at an early stage had made offers to settle it. The answer to that question depends on a comparison of the offers that were made, and the reasons those offers were rejected, with the settlement that was ultimately agreed.
The observation that it will be rare for costs to be awarded in cases where there has been no hearing on the merits is supported by several Federal Court decisions: Australian Securities Commission v Aust-Home Investments Ltd [1993] FCA 401 at [28] - [31]; Gribbles Pathology Pty Ltd v Health Insurance Commission Commonwealth of Australia & Graham Grayson (1997) 80 FCR 284 at 287. More recently the Supreme Court has acknowledged the "intrinsic difficulty in making costs orders in cases which have been resolved by compromise": Red Bull Australia Pty Ltd v Michael Peter Stacey and Christian Walter Graebner [2011] NSWSC 1350 at [2].
Having decided that the Tribunal did not apply the correct legal principles we allow the contractor's appeal on the basis that the Tribunal erred in law. That makes it unnecessary for us to consider the contractor's second ground of appeal, but we do so in order to clarify the Tribunal's obligations when determining issues following conciliation.

Breach of procedural fairness?

The contractor does not cavil with the settlement reached as a result of the Tribunal Member's involvement. But the contractor submitted that the Tribunal's decision that he pay the homeowners' costs should be set aside because, in reaching that decision, the Tribunal breached the rules of procedural fairness by either: 1. failing to ask the parties whether they objected to him determining the costs application as required by NCAT Procedural Direction 3; or 2. determining the costs application when the Member had conducted a conciliation between the parties which had resulted in the settlement of the claims.
NCAT Procedural Direction 3 obliges a Member who took part in a conciliation to ask the parties if they object to him or her proceeding to determine the matter: If the member has taken part in the conciliation of the matter, the member will ask the parties if they object to the member proceeding to determine the matter. The member will, in considering the objections raised, determine whether he/she will conduct the hearing or adjourn the matter to a later date before another member.
NCAT Procedural Direction 3 does not apply to these proceedings because it was not in force at the time the application for costs was determined: NCAT Act, Sch 1, cl 7(3)(b).
The contractor's alternative submission was that the Tribunal Member should not have determined the costs applications when he had actively participated in settlement discussions. The contractor relies on the affidavit of Douglas Hertslet dated 27 August 2015 setting out the Member's involvement in the settlement discussions. There is no indication in the transcript that the Tribunal Member either raised or otherwise gave the contractor the opportunity to object to him determining the costs applications.
At the relevant time s 54 of the CTTT Act provided that: "54 Tribunal to promote conciliation (1) Before making an order to determine any matter that is the subject of proceedings, it is the duty of the Tribunal to use its best endeavours to bring the parties in the proceedings to a settlement that is acceptable to all the parties."
As we have already indicated above at [10] above, a Tribunal Member should not hear a case if a fair minded lay observer might reasonably apprehend an impartial judicial mind might not be brought to bear on the resolution of the proceedings. In the course of assisting parties to resolve their dispute, a Tribunal Member may hear information that is disclosed on a confidential or 'without prejudice' basis. There is a risk that the Tribunal Member might consciously or unconsciously take that information into account when considering the merits of the claim. In this case there was no allegation that such information had been disclosed to the Member. The contractor has failed to identify the logical connection between hearing the parties' settlement discussions and "the feared deviation from the course of deciding the case on its merits."
In any event, the bias rule may be waived if a party fails to raise the issue in a timely manner: Aronson, Dyer and Groves, Judicial Review of Administrative Action, (5th ed 2013 LawBook Co) at 667; Sankey v Whitlam [1977] 1 NSWLR 333 at 358. One purpose of NCAT Procedural Direction 3 is to alert parties to the risk that they may waive their right to object to the Member determining their claim if they do not do so in a timely manner. In circumstances where that Direction did not apply and the contractor was legally represented, he can be taken to have waived his right to object to the Member determining the costs application.
The Tribunal did not breach any principle of procedural fairness in this case by determining the costs application after participating in conciliation.

The homeowner's appeal (AP 15/42967)

The homeowners cross-appealed on the basis that the Tribunal erred in failing to consider its submission that the contractor pays their costs on an indemnity basis.
The cross-appeal was lodged on 14 July 2015, 12 days after the contractor appealed. An internal appeal must be lodged "within 28 days from the day on which the appellant was notified of the decision to be appealed or given reasons for the decision (whichever is the later)": Civil and Administrative Tribunal Rules 2014 (NSW), r 25(4)(c). The Tribunal may extend the time for the lodgement of an appeal: NCAT Act, s 41.
We accept the evidence from the homeowners' solicitor that he received the reasons for the decision on 10 June 2015. To be within time, the appeal should have been lodged by 8 July 2015. It was not lodged until 14 July 2015, 6 days late.
The homeowners' solicitors uncontested evidence was that he initially received instructions not to appeal from the Tribunal's decision but was instructed to cross-appeal following receipt of the contractor's appeal.
We find that the homeowners would not have appealed but for the fact that the contractor appealed. The homeowners' solicitor acted promptly in lodging the cross-appeal after receiving the contractor's appeal. In those circumstances, the time for filing the cross-appeal is extended to 14 July 2015.
The grounds for appeal are that the Tribunal failed to determine the homeowners' application that costs be awarded on an indemnity basis. In the reasons at [9], the Tribunal recorded that the homeowners' application was that costs be awarded on an indemnity basis or, alternatively, on the ordinary (party/party) basis. The Tribunal was aware of the nature of the homeowners' application but did not address the application for indemnity costs or provide reasons for impliedly rejecting it.
It is an error of law for the Tribunal to fail to address an application or submission of substance which, if accepted, is capable of affecting the outcome of the case: Linfox Australia Pty Ltd v Fair Work Commission [2013] FCAFC 157; (2013) 240 IR 178 at [47]-[48]; Dennis Willcox Pty Ltd v Federal Commissioner of Taxation [1988] FCA 123 at [21], (1988) 79 ALR 267at 276-7. The homeowner's application for indemnity costs is such a submission.

Disposition

Having decided that the Tribunal did not apply the correct legal principles and failed to address the homeowners' application for costs on an indemnity basis, we allow both appeals and set aside the Tribunal's decision in HB 13/50846. To avoid further delay, we have also decided to deal with the appeal by way of a new hearing on the basis of the submissions and evidence filed by the parties at first instance and the further submissions made on appeal: NCAT Act, s 80(3).

New hearing

In determining the applications for costs, we cannot rely on "[A]ny statement or admission made before the Tribunal or any person at a meeting or other proceeding held for the purposes of" attempting to bring the parties to a settlement … ": CTTT Act, s 54(3). The Appeal Panel will not take into account any such statement or admission.
The homeowners submitted that the contractor should pay the costs on an indemnity basis or, alternatively, on the ordinary (party/party) basis. The basis for that application was that: 1. the contractor did not accept a Calderbank offer made to him by the homeowners on 13 September 2013; 2. the Tribunal can be satisfied that it is almost certain that the home owners would have succeeded if the matter had been heard; and 3. the contractor has capitulated and the homeowners have substantially succeeded.

First exception: unreasonable conduct by contractor?

We have concluded that the first exception to the general rule that each party is to pay their own costs does not apply.
The unreasonable conduct is said to be the non-acceptance of an offer made in accordance with the principles of Calderbank v Calderbank [1975] 3 All ER 333. That offer is also the basis for an application for indemnity costs if costs are awarded.
Although the Tribunal is not bound by the Uniform Civil Procedure Rules 2005 (NSW), a party is entitled to openly record an offer of settlement, pursuant to the well-established principles of Calderbank v Calderbank: Wallis Lake Fisherman's Co-operative Ltd v ACN 079 830 595 Pty Ltd t/as Jolly Joe's Fish 'n' Chips (No 2) (RLD) [2011] NSWADTAP 29 (9 June 2011).
The offer, which was made on 13 September 2013, was that the contractor discontinue his application for the payment of $12,829 and the homeowners would not file a counter-claim for defective work including the costs of rectification. The contractors would deliver certain pieces of marble to the homeowners and each party would bear their own costs. The letter concluded with a statement that if the offer is not accepted, and the contractor does not achieve a result which is more favourable to him, the homeowners will be relying on this letter in support of an application for indemnity costs, "or otherwise as relevant to costs" in accordance with the principles stated in Calderbank v Calderbank [1975] 3 All ER 333. The offer was open for 7 days from the date of the letter.
The homeowners submitted that the contractor's rejection of the Calderbank offer was unreasonable because, firstly, the only basis for the contractor's claim was quantum meruit and its case had been put on the basis of breach of contract. In those circumstances it was doomed to fail. Secondly, the kitchen did not meet the contractual specifications in respect of the dishwasher.
As well as the prospects of success as at the date of the offer, relevant factors in determining whether a Calderbank offer was unreasonably rejected include: the stage at which the offer was made, the time allowed to consider the offer, and the extent of the compromise: Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2) (2005) 13 VR 435 at 442; Miwa Pty Ltd v Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344 at [12].
The offer was made when the homeowners' claim for defective work had been foreshadowed but not made. In effect, the homeowners' "offer" was that the builder withdraw the claim. That cannot be characterised as a compromise. In addition, giving a party 7 days to consider an offer is a very short period. The ultimate result was that, rather than paying nothing, the contractor agreed to pay $32,000 in three instalments and deliver certain cut pieces of Calcutta marble. We accept that the ultimate result was less favourable to the contractor than the offer but only if the prospective defective works claim is taken into account.
We are not satisfied that the Calderbank offer was unreasonably rejected. Even if we were, that is a different issue from the issue of whether the conduct of the contractor was so unreasonable that he should be ordered to pay the homeowners' costs following settlement. We are not satisfied that it was. The contractor rejected the offer before the homeowners had made their application for $52,000 for defective work. The "offer" was that the contractor withdraw his entire claim. Insufficient time was given to consider the offer and a final decision on the merits of the claims was never made.

Second exception: is it 'almost certain' that the homeowners would have succeeded?

We have concluded that the second exception to the general rule that each party is to pay their own costs does not apply.
The Tribunal should not and will not conduct a hypothetical hearing, even on the papers, in order to determine whether it 'almost certain' that the homeowners would have succeeded. On the basis of the parties' submissions and evidence, that it is what would be required to determine that issue. In order to justify a costs order following settlement, it must be apparent without a detailed examination of the claim and the evidence, that that is the case. As the High Court said in Ex parte Lai Qin (1997) 186 CLR 622 at [7]: To (conduct a hypothetical hearing) would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided.
The homeowners submitted, in summary, that: 1. the design and construction of the cabinetry was defective because it did not provide sufficient support for the marble bench top; and 2. the cabinetry was not constructed in accordance with the contract which expressly identified it was to accommodate a specific model of dishwasher.
The homeowners' submission as to the sum that it would have been awarded, if successful, is not relevant to any question we need to determine.
In relation to the design and construction of the cabinetry, the homeowners said the experts agreed that the bench top had sagged, deflected from the wall and ultimately cracked. The contractor's expert stated that: "[T] here was a failure of … (the contractor) to appreciate the high loads exerted by the marble tops specified and also the fragile and brittle nature of marble."
According to the homeowners, that was a "concession" which, by itself, justified the Tribunal concluding that they would succeed on a breach of the statutory warranty in not carrying out work in a proper and workmanlike manner: Home Building Act 1989, s 18B(a). We disagree.
The quote from the contractor's expert was extracted from his 26 June 2014 report which responded to the homeowners' expert's report ('Second Review' dated 23 May 2014). This report takes issue with the suggestion from the contractor's expert that the floor under the kitchen the subject of the dispute may have sagged. The homeowners' expert refers to three factual matters. The third matter stated by the homeowners' expert is: 'The marble at the fulcrum point over the floor support near the cook top has cracked due to this deflection'.
The contractor's expert comments on these three items in his 26 June 2014 report. It is from these comments that the so-called concession has been drawn. In relation to the third matter the contractor's expert states in full: 'Yes the writer agrees due to the unequal settlement or movement at the fulcrum point i.e. the junction of the concrete floor to the timber floor may well have caused a failure of the floor to support the kitchen cupboards. This is a failure of the Structural Engineer, the Builder, and the Kitchen Designer to appreciate the high loads exerted by marble top specified and also the fragile and brittle nature of marble. The kitchen manufacturer, Kitchen Excellence, could not have been aware that the structural support of the floor was inadequate and would have assumed that the professionals who designed the structure and also built it would have considered the weight of the kitchen marble tops. CSI acknowledged the fact that the marble at the full fulcrum point has 'cracked due to this deflection' and the writer agrees.'
Read in context the so called concession is not a matter which justifies a conclusion that the homeowners would have succeeded in their case that the contractor had breached the statutory warranty by not carrying out work in a proper and workmanlike manner. The contractor's expert did not agree with the homeowners' expert's explanation for the building defect referred to above and among other things stated that the cause of the defect was the kitchen floor, constructed by others, which he stated was structurally inadequate.
It is clear to us having regard to the experts' reports that they were unable to agree on the issue of whether the design and construction of the cabinetry was defective or the cause of any defect.
The homeowners made detailed submissions about the standards in relation to the span of worktops. They disagreed with the contractor's expert evidence as to the applicability of various standards and challenged the contractor's expert opinion on matters including that the marble had cracked because the floor had differentially settled. The determination of the dispute between the parties would have required a decision as to which expert's evidence was to be preferred.
Given the conflicting views expressed by the experts, it is not 'almost certain' that the homeowners would have succeeded on this particular issue.
In relation to the design failing to accommodate a particular model of dishwasher, the homeowners contended that none of the contractor's defences could have succeeded. This was one of the issues that was identified in the parties' Agreed List of Issues to be resolved by the Tribunal Member. As submitted by the homeowners, when the contractor opened his case before the Tribunal Member his counsel conceded that: '[T] here was a contract for my client to install cabinetry and the cabinetry had to accommodate a Miele dishwasher of a specific model, namely G5111. When the cabinetry was installed and the dishwasher delivered, that particular model could not be accommodated'
These concessions indicate an admission that the contractor had breached the contractual requirement to construct and install the cabinetry such that it accommodated the specified model of dishwasher. Apart from substantial compliance being mentioned, the contractor's counsel raised the issue of an alleged representation that the homeowners would agree that they would accept a smaller dishwasher rather than raise the bench tops to accommodate the specified dishwasher. In addition counsel for the contractor made it clear that his client's case turned on conversations with the homeowners' interior designer and the homeowners' conduct and that was 'something we are going to tease out in the evidence.' Subject to the evidence that was yet to be heard, the doctrines of waiver and estoppel were foreshadowed in exculpation of the admitted breach. Finally, the contractor's counsel stated that even if the Tribunal was against him on the issues referred to, he reserved the right to make submissions about the proper measure of damages to be applied to his client's breach of contract.
Given these submissions, we are not satisfied that it was 'almost certain' that the homeowners would have succeeded on this issue.

Third exception: did the contractor effectively surrender or capitulate?

The contractor's claim was for $12,829 and the homeowner's claim was for $52,000. The basis of the settlement was that the contractor would pay the homeowners $32,000 in three instalments and deliver certain cut pieces of Calcutta marble. In our view it would have been a capitulation or surrender if the contractor had abandoned his own claim and agreed to pay the homeowners $52,000, or an amount close to that amount including the value of the marble. That is not what happened in this case.
When both claims are taken into account, the settlement is more accurately described as a compromise.
The final question, as to whether we should order costs on an indemnity basis, does not arise because we have not awarded costs on any basis.

Costs on appeal

The homeowners applied for the costs of the appeal in AP/41467. The contractor did not apply for costs in relation to either appeal.
The applicable costs rule is that each party is to pay their own costs unless the Tribunal is satisfied that there are 'special circumstances' warranting an award of costs. Section 60 of the NCAT Act sets out the relevant test: (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. (4) If costs are to be awarded by the Tribunal, the Tribunal may: (a) determine by whom and to what extent costs are to be paid, and (b) order costs to be assessed on the basis set out in the legal costs legislation (as defined in section 3A of the Legal Profession Uniform Law Application Act 2014 ) or on any other basis. (5) In this section: "costs" includes: (a) the costs of, or incidental to, proceedings in the Tribunal, and (b) the costs of, or incidental to, the proceedings giving rise to the application or appeal, as well as the costs of or incidental to the application or appeal.
The first basis for the homeowners' application was that the contractor settled their claim, applied for costs and then appealed. There is nothing "special" about that scenario and we are not satisfied that it warrants an award of costs.
The second basis for the homeowners' application was that the contractor listed 19 grounds of appeal in the Notice of Appeal and then purported to amend those grounds, reducing the number to nine. The homeowners filed a Notice of Reply to the 19 grounds and submitted that they should be entitled to their costs of doing so. The contractor submitted that the nine grounds were not all different grounds from the original 19 grounds of appeal and that they were entitled to amend the grounds of appeal.
We find that the homeowners were put to the unnecessary expense of having to respond to 19 grounds of appeal in circumstances where the contractor subsequently amended those grounds and reduced their number. However, the fact that the number was reduced and that the contractor ultimately agreed that there were two main grounds of appeal reflects their willingness to amend their grounds. The contractor did not conduct the proceedings in a way that unnecessarily disadvantaged another party to the proceedings nor were there any other relevant matters justifying an award of costs.

Orders

Orders in matter AP 15/41467: 1. The contractor's application for Senior Member Goldstein to disqualify himself for bias is refused. 2. Appeal from Tribunal's decision in HB 13/34899 is withdrawn and dismissed. 3. Appeal from Tribunal's decision in HB 13/50846 dated 4 June 2015 is allowed and the orders are set aside. 4. The grounds of appeal warrant a new hearing. 5. The respondents' (homeowners') application for costs on appeal is refused.
Orders in matter AP 15/42967: 1. Time for the lodging of the appeal is extended to 14 July 2015. 2. Appeal from Tribunal's decision in HB 13/50846 dated 4 June 2015 is allowed and the orders are set aside. 3. The grounds of appeal warrant a new hearing.
AP 15/41467 and AP 15/42967 - new hearing of costs applications in HB 13/50846: 1. The homeowners' application for costs is refused. 2. The contractor's application for costs is refused.

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 February 2016

Consumer, Trader and Tenancy Regulation 2009(NSW)

Consumer, Trader and Tenancy Tribunal Act 2001(NSW)

is the later)": Civil and Administrative Tribunal Rules 2014(NSW)

v NSW Bar Association (1983) 151 CLR 288 Michael Wilson & Partners Ltd v Nicholls (2011) 244 CLR 427 Miwa Pty Ltd v Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344 Re Minister for Immigration and Ethnic Affairs (Cth); Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 Red Bull Australia Pty Ltd v Michael Peter Stacey and Christian Walter Graebner [2011] NSWSC 1350 Sankey v Whitlam [1977] 1 NSWLR 333 Transfield Services (Australia) Pty Ltd v James Gaha [2012] NSWSC 865 Wallis Lake Fisherman's Co-operative Ltd v ACN 079 830 595 Pty Ltd t/as Jolly Joe's Fish 'n' Chips (No 2) (RLD) [2011] NSWADTAP 29 Wentworth v Graham [2003] NSWCA 240 Texts Cited: Aronson, Dyer and Groves, Judicial Review of Administrative Action, (5th ed 2013 LawBook Co) Category: Costs Parties: AP 15/41467 Douglas Hertslet t/as Kitchen Excellence (Appellant) Peter Doherty (1st Respondent) Jan Swinhoe (2nd Respondent)

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