John McDonald Building Services Pty Limited v Gusa

Submissions of the parties

1. The Builder asserted (3) that it had achieved "substantial success on the appeal, both in terms of the issues raised, the significance of those issues (in terms of time spent in submissions and argument) and in respect of the quantum of the issues in dispute". The Builder further submitted (4) that, by virtue of the Homeowners' abandonment of their remitted claims for relief pursuant to the ACL, "ultimately the effect of the Appeal Panel's decision was that the builder had near complete success on the appeal, and very substantial success below" (5). In those circumstances, the Builder asserted (6) that the Homeowners should pay its costs of the first instance hearing which gave rise to the appeal, and of the appeal.
2. The Builder submitted, correctly in our view, that, by virtue of Rule 38A(2) of the Civil and Administrative Tribunal Rules 2014, Rule 38 applied to the current competing costs applications, eliminating the need for either party to establish "special circumstances" pursuant to s 60 of the CAT Act in order to enliven the discretion to award costs. We also accept that, although costs are discretionary, the "starting point" is that costs follow the event in proceedings to which Rule 38, and thus Rule 38A apply (Ding v Sanli Design and Construction Pty Limited [2021] NSWCATCD 116).
3. The Builder submitted (10) that there were three significant issues in dispute in the appeal in respect of which the Builder asserted that it had "complete success". One of the three issues identified by the Builder as "significant", the question of leave to appeal, does not properly inform determining the current applications. Consistent with authority and the usual practice of the Appeal Panel, the question of leave was resolved by reference to the Appeal Panel's determination of the merits of the Builder's various grounds of appeal.
4. In the appeal, there were three significant issues, the first being with respect to liability pursuant to the Homeowners' ACL claims, the second whether the requirement that the Builder rectify defects, the quantum of which was not in dispute, should have been by way of a works order, rather than a money order as the Tribunal at first instance ordered, and the third whether the determination of the Homeowners' ACL claims, and/or the quantum of their damages was erroneous.
5. As recorded earlier, the net practical monetary effect of the Appeal Panel's decision was that the Homeowners' entitlement to receive approximately $90,000 was set aside, whilst they retained the benefit of a money order in the sum of approximately $60,000. Mathematically, and superficially, the Builder was somewhat more successful than were the Homeowners. Though relevant, that is not in our view decisive of the current dispute. The Builder's challenge to the assessment of the quantum of the Homeowners' ACL damages was rejected, as was its contention that their ACL claim should be dismissed.
6. The Builder submitted (13) that its challenge to the orders of the Tribunal at first instance pursuant to the ACL was "the most substantive issue in terms of time and value". The Builder was successful, in part, but as, contrary to the Builder's case in the appeal, the Homeowners' ACL claim was remitted for rehearing, and its challenge to the assessment of ACL damages was rejected, the measure of that success was quite limited.
7. The submission that the Homeowners "ought to have accepted that there was an unfortunate error by the Tribunal at first instance and rather than challenge the error, sought to remit it back to the primary Member for determination" is not supported by a balanced reading of the Appeal Panel's reasons for allowing the Builder's ACL challenge. As our reasons with respect to that challenge recorded, the issue was complex, and was extensively, economically and helpfully argued by both Counsel. In our view, albeit unsuccessful, the Homeowners did not unreasonably resist any challenge to the orders made by the Tribunal at first instance pursuant to the ACL.
8. To the extent that the Builder asserts that the conduct of the Homeowners either unnecessarily prolonged the proceedings, or involved acting unreasonably, we cannot agree with that contention. Again, the reasons of the Appeal Panel in the appeal confirm the complexity of the issues, and the careful and relevant submissions of each party with respect to them. We do not criticise either party for any aspect of the way in which the appeal was conducted or resisted.
9. In law and logic, we are unable to accept the contention of the Builder (16) that the Homeowners gained "no success" by maintaining the money order in the face of the Builder's appeal against it, and endeavours to replace that order with a work order. Those were matters of substance in respect of which, although unsuccessful, the Builder mounted arguments which required proper, genuine and realistic consideration by the Appeal Panel (Resource Pacific Pty Ltd v Wilkinson [2013] NSWCA 33, at [9]).
10. We do not consider that the Homeowners' decision not to pursue their remitted ACL claim assists either party's claim. We do not know why that occurred. The authorities with respect to proceedings that are settled to which we shall refer support our refusal to draw any inferences arising out of the settlement of the remitted proceedings.
11. In reliance upon the matters to which we have referred, it was submitted by the Builder (18) that the Homeowners should be ordered to pay all, or a substantial part of the Builder's costs of the appeal, an apportionment of "no less than 75%" being urged in the latter context. So far as the costs at first instance are concerned, the Builder submitted (20-22) that the "ultimate decision at first instance" was that the Builder pay the Homeowners an amount of $58,382.24 for defects, which was close to one-third of the amount claimed. It was thus submitted that the Builder had "far more success below than the owners" and that, accordingly, the Homeowners should pay all or a substantial part of the Builder's costs.
12. The submissions of the Homeowners of 27 May 2022 relied upon submissions made by it with respect to the costs of the appeal on 21 March 2022. The Homeowners submitted (7) that "if the First Instance Costs Order remains in force, the homeowners submit that order should not be disturbed for the reasons recorded in these submissions and in the homeowners' appeal submissions."
13. The costs orders at first instance were set aside by the orders of the Appeal Panel of 14 March 2022. As the substantive orders at first instance upon which the costs orders were based were materially disturbed by the Appeal Panel, that is not surprising. We understand that both parties asked the Appeal Panel to redetermine that issue. Neither party has suggested that there is any legislative impediment to our doing so. In our view, determining the current applications falls within the jurisdiction of the Appeal Panel pursuant to s 81(1)(d) of the CAT Act which empowers the Appeal Panel to "substitute" "another decision" for the decision under appeal which we have set aside.
14. The Homeowners, correctly in our view, did not dispute that Rule 38 was engaged by reason of the operation of Rule 38A, or that the starting point with respect to each party's claim in those circumstances was that costs follow the event.
15. The Homeowners submitted (10) that they were required to go to the Tribunal "to get what [they] achieved" in the circumstances there referred to. It was thus submitted (11) that the Homeowners were being "put to the necessity of litigation". With respect to the Homeowners, both parties were put to the necessity of litigation by reason of the matters which were legitimately in dispute between them. Ultimately, in our view, in the present circumstances it is not the reality of being put to the necessity of litigation which assumes significance, but the extent to which each party was successful or unsuccessful in that litigation.
16. The Homeowners submitted that they should retain the orders for costs previously made with respect to the first instance proceedings. In view of the extent to which the Homeowners' success at first instance was reduced by the Appeal Panel, we cannot agree with that submission.
17. In their submissions of 14 June 2022, the Homeowners reiterated (1) that they had successfully maintained the monetary award against the Builder for $58,382.24 and that, accordingly, the costs of the proceedings should follow the event. That submission overlooks the Homeowners' failure to maintain the ACL award which they obtained at first instance.
18. It was submitted by the Homeowners (2) that each party should bear their own costs of the appeal proceedings on the basis that the parties had "mixed success in the Appeal Proceeding and the misleading and deceptive conduct claim is undetermined".
19. So far as the first instance and remitted proceedings are concerned, the Homeowners continued to rely upon their submissions of 23 May 2022 and submitted (9(b)), and that, having regard to the fact that the remitted proceedings had by that time been terminated, "the merits of the Homeowners' misleading and deceptive conduct claim have not been decided on a final basis, by effect of the Appeal Proceeding decision". It was further submitted (9(c)) that the Homeowners made a "forensic decision" not to pursue the remitted ACL claims.
20. It was submitted (10) that the fact that the Tribunal charged with hearing the remitted ACL claims ordered "by consent" that there be no order for costs was in effect a "concession by both parties that the only relevant costs to be determined are those in relation to the First Instance Proceedings and the Appeal Proceedings". The former submission is supported by the parties' agreement that there be no order for costs of the remitted proceedings. We do not accept that the resolution of the remitted proceedings with no order for costs has any implications with respect to the costs applications with which the Appeal Panel is concerned.
21. In reliance upon the figures advanced by them (12) the Homeowners asserted that the Builder should be ordered to pay the costs at first instance.

Principles governing the present application

1. As noted above, it is not in dispute that, Rule 38 of the Civil and Administrative Tribunal Rules 2014 (the Rules) having applied to the costs of the proceedings at first instance, pursuant to Rule 38A(2) of the Rules, Rule 38 applies to the costs in the appeal.
2. In Thompson v Chapman [2016] NSWCATAP 6, the Appeal Panel suggested that the principles governing costs applications when Rule 38 applies are that: 1. the Appeal panel has a general discretion in respect of the award of costs; 2. the "starting point" in exercising such discretion is that "the usual order for costs" is that a successful party should be entitled to an order for costs; 3. there is no absolute rule that, absent disentitling conduct, a successful party is to be compensated by the unsuccessful party; 4. the factors to be considered in awarding costs in a particular case are not to be confined as to do so would constrain the general discretion; 5. a relevant consideration is whether, by reason of the relative success of the parties on different issues and the time taken to determine those issues, an order for costs based on issues should be made; and 6. a relevant consideration is whether, by reason of the nature of the proceedings, the usual rules should otherwise be displaced in whole or in part.
3. In Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, Gaudron and Gummow JJ at [22] and McHugh J at [65] said that the proper exercise of the discretion requires the tribunal to do justice between the parties and to exercise the discretion having regard to relevant considerations and in a manner which is not arbitrary or capricious.
4. We do not draw inferences adverse to either party by reason of the resolution of the remitted proceedings without a determination of the merits of those proceedings after a hearing. In those circumstances, the general principle with respect to costs of proceedings in courts is that, if it cannot be said that one party has simply "capitulated", no order for costs is appropriate, to the intent that each party bear its own costs, unless it can be seen that one party has acted unreasonably in bringing or defending the proceedings (Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Quin [1997] HCA 6; (1997) 186 CLR 622).
5. In very rare cases, it may be appropriate to make an order for costs without a contested hearing on the merits, if the Tribunal can be almost certain that one party or the other would have "won" had the case been litigated to judgment (Ferguson v Hyndman [2006] NSWSC 538; Newcastle Wallsend Coal Co Pty Limited v Industrial Relations Commission (NSW) [2006] NSWCA 129; Foley v Australian Associated Motor Insurers Limited [2008] NSWSC 778), or the merits of the claim have in practical terms been determined in favour of the party seeking costs (Luxottica Retail Australia Pty Limited v Grant [2009] NSWCA 378).
6. In Australian Securities Commission v Aust-Home Investments Ltd [1993] FCA 585; (1993) 44 FCR 194, Hill J said, at [201]-[202] that "It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a court determining how the costs of the proceedings should be borne to endeavour to determine for itself the case on the merits, or, as it might be put, to determine the outcome of a hypothetical trial" which would "particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue".
7. In Lake Burrendong State Park Trust v Thompson [2011] NSWSC 1554, after extensively reviewing the principles governing costs in proceedings which were settled without a hearing, Hallen AsJ (as Hallen J then was) suggested, at [83] that "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 costs discretion will usually mean the court will make no order as to the costs of the proceedings". In our view, his Honour's observations, and the statements in the other authorities to which we have referred are relevant to the inferences which we should draw, or not draw, from the resolution of the remitted proceedings.
8. In view of the Builder's alternate claim for a proportional costs order, it is necessary to consider whether and, if so, in whose favour, a proportional costs order is appropriate, and, if it is, the proportion of the costs which should be awarded.
9. In BHP Billiton Iron Ore Pty Limited v National Competition Council (No 2) [2007] FCA 557, Middleton J observed, at [23] that: "Where the Court is considering the question of costs in respect of a lost distinct or severable issue or enquiry, which can clearly be treated as distinct and severable, then to determine whether the successful party will lose some or all of its costs, it will be necessary to consider and weigh up case management principles, the significance of the issue or enquiry and proportion of the proceedings as a whole and whether the issue or enquiry had any relative strength or merit."
10. In Bostik Australia Pty Limited v Liddiard (No 2) [2009] NSWCA 304 the Court of Appeal confirmed that the "general" focus in costs disputes was on "overall success", rather than a consideration of success or failure with respect to individual issues when determining costs applications.
11. Relevantly for present purposes, in Avopiling Pty Limited v Bosevski [2018] NSWCA 219, the Court of Appeal accepted that the evaluation of success or failure could be approached by reference to the "practical outcome" of the proceedings.
12. In Firebird Global Master Fund II Limited v Republic of Nauru (No 2) [2015] HCA 15, the High Court observed at [6] that the "preferable approach" (overall success) with respect to costs should apply when "it may not be said that the event of success is contestable, by reference to how separate issues have been determined", unless there were "special circumstances to warrant a departure from the general rule". Their Honours suggested that there were "good reasons not to encourage applications regarding costs on an issue by issue basis, involving apportionments based on degrees of difficulty of issues, time taken to argue them and the like".
13. In B & M Mitchell Pty Limited v Mikel Investments Pty Limited & Divlist Pty Limited t/as Contemporary Homes [2018] NSWCATAP 63, the Appeal Panel at [10] said that: "It is an uncontroversial principle that the rationale of awarding costs is to partially reimburse the successful party for costs incurred. The intention is not to punish the unsuccessful party, but rather to compensate the successful party for costs incurred." The decision of the High Court in Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 535 supports that principle.

Consideration

1. Nothing to which we have been referred persuades us that the resolution of the remitted proceedings establishes any of the circumstances identified by the authorities, or that the resolution was other than a commercial decision taken by both parties for reasons which, unsurprisingly, are not known to us. The fact that, by consent, no order for costs of the remitted proceedings was made reinforces that impression.
2. Neither the Builder nor the Homeowners can successfully assert total or overwhelming success on appeal, or as a result of the Appeal Panel's decision, such success at first instance. The Homeowners' description "mixed success" on appeal is apt with respect to the appeal, and the ultimate outcome of the first instance proceedings. The determination of the costs of the proceedings at first instance is necessarily undertaken in the light of the impact of the appeal on the orders originally made. The Builder's success at first instance is greater as a result of the decision on appeal, but each party ultimately had mixed success as a result of the appeal decision.
3. It is not in doubt that, in monetary terms, the appeal resulted in the Builder failing to secure a work order with respect to rectification works which were not disputed to be worth almost $60,000. Conversely, the Homeowners were denied approximately $90,000 of the total award made by the Tribunal at first instance, but were afforded the opportunity to re-agitate their ACL claim, which, if they did so successfully, may have resulted in an order for as much as $40,000 in their favour in view of the rejection of the Builder's challenge to the assessment of the damages claimed by the Homeowners pursuant to the ACL.
4. For the reasons recorded above, the settlement of the remitted proceedings means that the proceedings ultimately resulted in the Builder being more successful than the Homeowners in monetary terms. Although involving no monetary difference, the Builder's unsuccessful attempt to secure a work order, in lieu of the money order made at first instance constituted significant success for the Homeowners. It is also relevant that, although the Builder was successful with respect to the Homeowners' ACL claim, the Builder's challenge to the quantum of the relief awarded in respect of it was unsuccessful.
5. We have earlier recorded that, in our view, each party had, and agitated a valid case on appeal. The issues raised in the appeal were complex. Neither party prolonged the proceedings, unnecessarily or otherwise. We do not consider that the conduct of either party in the conduct of the appeal should either assist or impede a claim for costs.
6. In the circumstances we have recorded, the "practical outcome" of the appeal does not in our view favour either party when evaluating the comparative success of the parties in view of the monetary and non-monetary orders made in the appeal.
7. We do not understand that the authorities with respect to costs generally, and with respect to proportional costs orders to which we have referred require a close forensic examination of the relative success of the parties with respect to the issues in the proceedings, the amounts involved, or the time taken up by them. Neither party achieved overall, or overwhelming success in the proceedings with which we are concerned. Nor do we consider that attempts to classify or quantify the success of the parties with respect to "distinct or severable issues" in the proceedings advance either party's claim for costs. We do not find that the "practical outcome" of the proceedings advances either party's claim. In terms of quantifiable and non-quantifiable outcomes, the parties had "mixed success" in the appeal.
8. It is necessary to consider the costs at first instance in the light of the outcome of the appeal. Material to our consideration with respect to the costs at first instance is a matter which was not relevant to the appeal, or the costs of the appeal. At the commencement of the hearing at first instance, the Homeowners abandoned a substantial part of their claim. Prior to that occurring, the Builder was obliged to prepare to meet that part of the Homeowners' case. That abandonment the Builder effectively increased the measure of the Builder's success at first instance. On the other hand, as the evidence makes clear, the factual substratum of the Homeowners' ACL claim, the quantum of the cost of rectification work and the issue of a works order as opposed to a money order assumed very considerable significance in terms of time and complexity at first instance, and involved overlapping, rather than discrete issues.
9. Other than by focusing on monetary outcomes to the exclusion of the less quantifiable, but no less significant other matters to which we have referred, we could not find that either party was, in an overall sense, materially more successful than was the other party at first instance. Attempting to retrospectively analyse success or failure on discrete issues is artificial in the circumstances we have identified. We find that the parties were successful and unsuccessful at first instance in approximately equal measures.
10. An appropriate order in our view is that each party pay its or their own costs of and incidental to the proceedings at first instance and on appeal.

Orders 1. Pursuant to s 50(2) of the Civil and Administrative Tribunal Act 2013 (NSW) the Appeal Panel dispenses with a hearing of these proceedings 2. The parties bear their own costs of the proceedings at first instance and of the appeal

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: 19 August 2022