Jones v Mega Awesome Kapow Constructions Pty Ltd

NCAT Appeal Panel|2024-09-24|Before: Mr P

Date of Decision: 19 December 2023 Before: D Goldstein, Senior Member File Number(s): 2021/00378509 (HB 21/41447)

Introduction

This decision concerns the costs consequences of the appeal decision we made on 17 May 2024 in Jones v Mega Awesome Kapow Constructions Pty Ltd [2024] NSWCATAP 86 (the appeal decision). These reasons should be read with, and assume a knowledge of, that decision.
In the appeal decision we allowed the homeowner's appeal against an order made on 29 September 2023 in the Consumer and Commercial Division (CCD) of the Tribunal at first instance that he pay the builder $78,551.51 following a quantum meruit assessment of work done on the homeowner's home. The amount payable was reduced to $19,005.40 on appeal.
We also, at the commencement of that appeal hearing, dismissed an appeal made by the builder when it was withdrawn. The homeowner sought costs of that appeal, which were reserved. It was also noted that, after the appeals were commenced, the Tribunal that heard the original proceedings had published a cost decision (the costs decision) on 19 December 2023, which required the homeowner to pay the costs of those proceedings. This was an instance of the Tribunal making an order for costs to follow the event: i.e. an order in favour of the builder. Counsel for the homeowner foreshadowed that, depending on the outcome of the homeowner's appeal, issues might arise with respect to the costs decision.

Brief outline of the appealed proceedings.

The course of the proceedings below are explained in detail in the appeal decision. For costs purposes, it is necessary to bear in mind that there were a number of hearings and decisions made by the Tribunal below in reaching its final decision. Relevantly, these were: 1. A decision made on 5 October 2022 following a hearing on 17 and 18 May 2022 (the 2022 decision). In this decision the Tribunal ordered that that the builder have leave pursuant s 94(1A) of the Home Building Act 1984 (NSW) (the HBA) to recover for work done on the homeowner's residence on a quantum meruit basis despite there being no contract of insurance for those works under s 92 of that Act. The Tribunal also restricted the amounts the builder could claim on a quantum meruit basis, "to its unpaid invoices as identified in schedule 1 of its final submissions". The Tribunal disallowed the builder's claim for a builder's margin, made factual findings as to the charging basis agreed between the parties, and refused to allow the builder to reassess the value of the work for which it had already been paid. The Tribunal also made directions concerning how it would proceed to hear evidence regarding the final quantum meruit assessment. 2. A ruling made on 12 January 2023 after the proceedings were relisted, at the request of the homeowner, to determine a controversy that had arisen between the parties as to the work the builder was attempting to claim on a quantum meruit and whether it exceeded the boundaries set by the Tribunal in the 2022 decision. The Tribunal made orders specifically excluding certain works from the quantum meruit claimable by the builder (the preliminary ruling). 3. A final decision made by the Tribunal with respect to the builder's quantum meruit claim published on 29 September 2023, following a hearing on 14 April 2023 (the 2023 decision). In the 2023 decision the Tribunal amended (in part) the preliminary ruling by allowing the builder to recover for certain works previously disallowed, and awarded it $78,588.51 on its quantum meruit claim.

Should the costs issues on appeal be determined without a hearing?

Subsections 50 (2) to (4) of the Civil and Administrative Tribunal Act 2013 (NSW) (the NCAT Act) provide: "(2) The Tribunal may make an order dispensing with a hearing if it is satisfied that the issues for determination can be adequately determined in the absence of the parties by considering any written submissions or any other documents or material lodged with or provided to the Tribunal. (3) The Tribunal may not make an order dispensing with a hearing unless the Tribunal has first: (a) afforded the parties an opportunity to make submissions about the proposed order, and (b) taken any such submissions into account. (4) The Tribunal may determine proceedings in which a hearing is not required based on the written submissions or any other documents or material that have been lodged with or provided to the Tribunal in accordance with the requirements of this Act, enabling legislation and the procedural rules."
Both parties have indicated their agreement to issues relating to costs being determined on the papers. The builder does not oppose us dispensing with a hearing with respect to our power to reconsider the costs below. The homeowner consents to us dispensing with a hearing on that issue. Having reviewed all the materials we are satisfied that these issues can be adequately determined in the absence of the parties by considering the materials lodged by them. The relevant facts are not in issue just the outcome. We therefore dispense with a hearing.

Is it necessary to amend the notice of appeal to include an appeal against the costs decision?

In submissions both parties agree the need to reconsider the costs order arises "from a change in outcome" on appeal, not from any error or fault with the costs decision itself. The homeowner made the point that he does not wish to appeal the costs order, but that it needs to be reconsidered in the light of the outcome of the appeal and the history of settlement offers made by the homeowner.
Subsections 36(1) and (4) of the NCAT Act provide: "(1) The guiding principle for this Act and the procedural rules, in their application to proceedings in the Tribunal, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings. … (4) In addition, the practice and procedure of the Tribunal should be implemented so as to facilitate the resolution of the issues between the parties in such a way that the cost to the parties and the Tribunal is proportionate to the importance and complexity of the subject-matter of the proceedings."
The Appeal Panels powers when determining an appeal are set out in s 81 of the NCAT Act: "(1) In determining an internal appeal, the Appeal Panel may make such orders as it considers appropriate in light of its decision on the appeal, including (but not limited to) orders that provide for any one or more of the following - (a) the appeal to be allowed or dismissed, (b) the decision under appeal to be confirmed, affirmed or varied, (c) the decision under appeal to be quashed or set aside, (d) the decision under appeal to be quashed or set aside and for another decision to be substituted for it, (e) the whole or any part of the case to be reconsidered by the Tribunal, either with or without further evidence, in accordance with the directions of the Appeal Panel. (2) The Appeal Panel may exercise all the functions that are conferred or imposed by this Act or other legislation on the Tribunal at first instance when confirming, affirming or varying, or making a decision in substitution for, the decision under appeal and may exercise such functions on grounds other than those relied upon at first instance."
While agreeing that the need to reconsider the costs decision arose from the change in outcome on appeal, the builder submitted that a formal amendment of the notice of appeal "ought" to be made and that in order to do so an extension of time is required as the appeal against the costs order would be well out of time. The time for filing a notice of appeal is within 28 days of notification of the appeal decision: rule 25(4)(c) of the Civil and Administrative Tribunal Rules 2014 (NSW) (the NCAT Rules).
The homeowner, on the other hand, argued that there was no need to formally amend the notice of appeal. The Appeal Panel has the power under s 81(1)(e) to reconsider any part of the case, and a formal amendment is not required. Moreover, this is so when all parties are on notice of and have had an opportunity to address the costs issues arising from the changed outcome on appeal. The homeowner said that if we did not accept that submission and required an amendment to the notice of appeal, then an extension of time under s 41 of the NCAT Act would also be required. A proposed amendment was included with the homeowner's submission in case we reached that conclusion.
We have concluded that we have the power to reconsider the costs decision (and if necessary, to set it aside) in circumstances where the decision itself is not challenged, but where its outcome has potentially been undermined by a decision on appeal altering the basis on which the costs decision was made. This is what the homeowner contends is the case. That power is to be found in s 81. The power has to be exercised in a procedurally fair manner, which we have endeavoured to do here. The need for the costs decision to be reconsidered only arose after the result of the appeal was known (and the final outcome's interaction with settlement offers became obvious). This points to utility of the Appeal Panel reconsidering the costs decision, without a formal amendment, as a means of facilitating the just, quick and cheap resolution of the real issues in the proceedings.
An amendment to the notice of appeal is not required for us to reconsider the in these circumstances.

The power to award costs.

The general rule in the Tribunal is that costs of an appeal are only allowed where special circumstances are found - see s 60 of the NCAT Act. Section 60, however, is in Pt 4 of the NCAT Act. Section 35, which is also in Pt 4, provides: "Each of the provisions of this Part is subject to enabling legislation and the procedural rules."
Therefore, s 60 is subject to the procedural rules.
Rule 38 of the of NCAT rules applies to proceedings in the CCD, which the original proceedings in this case were. It provides: "(1) This rule applies to proceedings for the exercise of functions of the Tribunal that are allocated to the Consumer and Commercial Division of the Tribunal. (2) Despite section 60 of the Act, the Tribunal may award costs in proceedings to which this rule applies even in the absence of special circumstances warranting such an award if - (a) the amount claimed or in dispute in the proceedings is more than $10,000 but not more than $30,000 and the Tribunal has made an order under clause 10(2) of Schedule 4 to the Act in relation to the proceedings, or (b) the amount claimed or in dispute in the proceedings is more than $30,000."
Rule 38A provides with respect to internal appeals that: "(1) This rule applies to an internal appeal lodged on or after 1 January 2016 if the provisions that applied to the determination of costs in the proceedings of the Tribunal at first instance (the "first instance costs provisions") differed from those set out in section 60 of the Act because of the operation of-- (a) enabling legislation, or (b) the Division Schedule for the Division of the Tribunal concerned, or (c) the procedural rules. (2) Despite section 60 of the Act, the Appeal Panel for an internal appeal to which this rule applies must apply the first instance costs provisions when deciding whether to award costs in relation to the internal appeal."
In Vella v Mir (No 3) [2020] NSWCATAP 17 the Appeal Panel considered the principles relating an order for costs in detail: "28. Clause 38 gives the Tribunal a wide discretion to make an order for costs. It does not specify the factors the Tribunal must take into account in exercising the discretion, although the discretion to make such an order must be exercised judicially: see, for example, Ruddock v Vadarlis [2001] FCA 1865 at [9]. 29. Where an application has been heard and determined on the merits and Clause 38 applies, the appropriate starting point for the exercise of the discretion is not that the parties are to pay their own costs. Rather, it is the well-established position at common law; that is, that the purpose of making a costs order is to provide compensation to the party in whose favour the order is made for the expense the party has been put to in prosecuting or defending legal proceedings. In general terms, this means that a party who is successful is entitled to an order for costs in its favour, subject to exceptions generally involving misconduct on the part of that party: Latoudis v Casey [1990] 170 CLR 534; Oshlak v Richmond River Council [1998] HCA 11. 30. In BNT Constructions Pty Ltd v Allen [2017] NSWCATAP 186 the Appeal Panel, having set aside a costs order made in the Consumer and Commercial Division, decided to re-exercise the costs discretion. Clause 38 was the applicable costs provision in that case. At [67] the Appeal Panel noted the following principles relevant to the exercise of the discretion: (1) the starting point is that a successful party should be entitled to an order for costs in his favour; (2) an award of costs is by way of an indemnity and not as punishment; (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 are not to be confined as to do so would constrain the general discretion; (5) the relative success of the parties on different issues and the time taken to determine them may be relevant; (6) the nature of the proceedings is relevant; (7) the proper exercise of the discretion requires a decision maker to do justice between the parties and to exercise the discretion having regard to relevant considerations and in a manner which is not arbitrary and capricious. 31. Generally, costs are awarded in favour of the successful party based on the outcome of the proceedings as a whole, without differentiating between particular issues on which the party may not have been successful. That said, a different costs order may be made if the losing party succeeds on significant issues: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [31]-[36]; Sydney Ferries v Morton (No 2) [2010] NSWCA 238 at [10]-[12]. The dollar amount of a particular claim does not determine its dominance in the proceedings. Rather, regard must be had to all of the work involved in prosecuting and defending the parties' various claims, including but not limited to the time taken up at the hearing. 32. In Equity Tomanovic v Global Mortgage Corporation Pty Ltd (No 2) (2011) 288 ALR 385, Campbell JA (with Macfarlan JA and Young JA agreeing) held at [107] that an issue or group of issues is "clearly dominant" when it is clearly dominant in the proceedings as a whole. In that case, the approach by counsel to analysing the percentage of costs between the parties - counting the proportion of paragraphs and pages devoted to each factual topic - was held at [84] to be "a highly artificial way of proceeding" which gave "a false air of mathematical precision". 33. In relation to separable issues, a successful party's entitlement to the whole of the costs of the proceedings should not be discounted to allow for another party's success in a separate issue that played a very minor part in the proceedings as a whole: Macourt v Clark (No 2) [2012] NSWCA 411 at [7]. Further, in Hawkesbury District Health Service Ltd v Chaker (No 2) [2011] NSWCA 30 at [14], the Court of Appeal held that the severability of one issue on which the successful party failed is not, without more, sufficient to warrant departure from the general approach. The exercise of discretion will often depend upon matters of impression and evaluation: Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373 at [11]. 34. It is open to the Tribunal to consider the effect of a Calderbank letter in accordance with common law principles in determining the exercise of its discretion. 35. In Miwa Pty Ltd v Siantan Properties Pte Ltd (No. 2) [2011] NSWCA 344 Basten JA identified two questions which are relevant to a Calderbank offer. They are whether there was a genuine offer of compromise and whether it was unreasonable of the offeree not to accept it. 36. The determination of whether or not the rejection of an offer was reasonable is an evaluative judgment requiring a consideration of the facts and circumstances specific to the case: Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 at [19]. Further, reasonableness is not to be determined with hindsight. Rather, the strength or otherwise of the applicants' claim should be considered as at the time of the offer: Gretton v Commonwealth of Australia [2007] NSWSC 149. 37. The mere fact that a genuine offer of compromise made in a Calderbank letter is not accepted does not automatically mean that the offeror is entitled to an order for costs on an indemnity basis. As stated by Giles J in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37]: …. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure: see for example, John S Hayes & Associates Pty Ltd v Kimberley-Clarke Australia Pty Ltd (1994) 52 FLR 201; MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FLR 235. 38. The onus of establishing that a different costs order should be made falls on the offeror."
In the present case, the homeowner relies on a series of offers he made to the builder prior to the commencement of the proceedings below, during those proceedings, and early in the appeal process, which he says the builder unreasonably refused. He argues that he should not have to pay the builder's costs at all, and that the builder should pay his costs, including some on the indemnity basis as discussed below. The builder takes issue with this, arguing that the homeowner should pay its costs of the original proceedings and that there should be no costs order with respect to the appeals. The builder submits that an indemnity costs order is not appropriate in the circumstances.
In Heffernan v Innes (No 2) [2021] NSWSC 1187 Hallen J explained the nature of an indemnity costs order, when compared with a cost order made on the ordinary basis. His Honour said: "123. An award of costs assessed on the "indemnity basis" provides for the payment of all costs and disbursements, other than those that appear to have been unreasonably incurred or appear to be of an unreasonable amount. In Bouras v Grandelis (2005) 65 NSWLR 214; [2005] NSWCA 463, Santow JA wrote, at [118], quoting Sir Robert Megarry VC in EMI Records Limited v Ian Cameron Wallace Ltd [1983] 1 Ch 59 at 71: "The litigant does not have to establish that the costs were necessary or proper, or that the costs were of a reasonable amount and reasonably incurred. Provided they are costs of and incidental to the proceedings, he is entitled to recover them, subject only to the qualification that they are liable to be reduced in respect of anything that the taxing master considers falling within the headings 'unreasonable amount' or 'unreasonably incurred'. In a word, the difference is between including only the reasonable and including everything except the unreasonable." 124. The passage was referred to with approval in Mr Rental Australia Pty Ltd v IRD Services Pty Ltd (No 2) [2016] NSWSC 918, at [16] (Meagher JA). 125. An order for costs calculated on the indemnity basis can substantially increase the costs that a successful party can recover from the unsuccessful party in the proceedings. When such an order is made, it more fully, or adequately, compensates the successful party to the disadvantage of what otherwise would have been the position of the unsuccessful party in the absence of relevant delinquency on its part: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [44]. (The words "relevant delinquency" were used by Gaudron and Gummow JJ, meaning delinquency bearing a relevant relation to the conduct of the case, rather than moral delinquency or some ethical shortcoming.)"
One circumstance which has given rise to cost orders being made on the indemnity basis is a party's failure to accept a reasonable offer of compromise made in accordance with the principles in Calderbank v Calderbank [1975] 3 WLR 586; [1975] 3 All ER 333. In Girardi as trustee for The Superannuation Fund - Greengate Investments v Duncum [2021] NSWSC 1138 at Ward CJ in Eq (as she then was) explained at [88] - [91]: "While the rejection of a Calderbank offer (in circumstances where it later transpires that the final result in the proceeding is less favourable to the offeree), enlivens the discretion to award indemnity costs, it does not create a prima facie right to such an order (see Favotto Family Restaurants Pty Ltd v Chief Commissioner of State Revenue (No 2) [2020] NSWSC 519 (Favotto) at [28]; Chief Commissioner of State Revenue v Platinum Investments Management Ltd (No 2) [2011] NSWCA 197 at [9] per Campbell, Macfarlan JJA and Handley AJA). Where the offer is a Calderbank offer, the onus to demonstrate that it was unreasonable to reject it is on the party seeking to rely on the making of the offer (see Evans Shire Council v Richardson (No 2) [2006] NSWCA 61 at [26] per Giles, Ipp and Tobias JJA). In order to warrant the making of a special costs order, the offer must constitute a genuine offer of compromise that it was unreasonable for the party against whom the order is sought not to accept (see Herning v GWS Machinery Pty Ltd (No 2) [2005] NSWCA 375 at [4] per Handley, Basten and Beazley JJA; see also Hancock v Arnold; Dodd v Arnold (No 2) [2009] NSWCA 19 at [23] per Ipp, McColl and Basten JJA; Anderson Group Pty Ltd v Tynan Motors Pty Ltd (No 2) (2006) 67 NSWLR 706; [2006] NSWCA 120 at [8] per Basten JA (with whom Santow JA and Young CJ in Eq, as his Honour then was, agreed); Leichhardt Municipal Council v Green [2004] NSWCA 341 at [23] per Santow JA (with whom Bryson JA and Stein AJA agreed). The factors relevant to take into consideration when considering whether the rejection or non-acceptance of the offer was unreasonable (as summarised in Favotto at [20]-[30]) include: (i) the stage of the proceeding at which the offer was received; (ii) the time allowed to the offeree to consider the offer; (iii) the extent of the compromise offered; (iv) the offeree's prospects of success assessed as at the date of the offer; (v) the clarity with which the terms of the offer were expressed; and (vi) whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it (see Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298 at [25] per Warren CJ, Maxwell P and Harper AJA; Commissioner of State Revenue v Challenger Listed Investments Ltd (No 2) [2011] VSCA 398 at [8] per Buchanan and Tate JJA and Sifris AJA; Miwa v Siantan Properties at [12] per Basten JA (with whom McColl and Campbell JJA agreed). Where a Calderbank offer is unreasonably rejected, and the offeror succeeds in litigation, costs may be made on an indemnity basis at least from the date of the offer or thereabouts. Whether such an order will be made will be determined in the exercise of the Court's discretion (see Becker v Queensland Investment Corp (No 2) [2009] ACTSC 147 at [12] per Refshauge J)."
In Manca v Tullipan Homes Pty Ltd (No 2) [2024] NSWCATAP 29 the Appeal Panel stated the requirement for assessing the reasonableness of the rejection of an offer, thus: "32. As recently set out by Ward CJ in Eq (as her Honour then was) in E Group Security Pty Ltd v Chief Commissioner of State Revenue (No 2) [2021] NSWSC 1296 at [59]- [60], the factors to be taken into regard when considering whether the rejection or non-acceptance of an offer was unreasonable include: (1) the stage of the proceeding at which the offer was received; (2) the time allowed to the offeree to consider the offer; (3) the extent of the compromise offered; (4) the offeree's prospects of success assessed as at the date of the offer; (5) the clarity with which the terms of the offer were expressed; and (6) whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it."
See also Hazeldene's Chicken Farm Pty Ltd v Victorian Work Cover Authority (No2) [2005] VSCA 298 and Miwa Pty Limited v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344.
In Jones v Bradley (No 2) [2003] NSWCA 258, at [13] the Court of Appeal addressed the issue of the timing of a Calderbank offer and said: "Whilst both parties submitted that it is relevant for the Court to consider the provisions of the various Rules of Court concerning Offers of Compromise when exercising its discretion in awarding costs in a situation where a Calderbank offer has been made, the Court's discretion is not constrained by those Rules. Accordingly, when considering whether the time in which a Calderbank offer must be accepted is reasonable, it is necessary to look at all the circumstances surrounding the making of the offer."
A Calderbank offer should allow the person to whom the offer is made sufficient time to consider and reflect on the offer. In Young v Young [1998] 2 FLR 1131, 1140 Thorpe LJ) with whom Chadwick and Butler-Sloss LLJ agreed explained: "Calderbank offers do not bite until the recipient has a reasonable opportunity to consider the proposed compromise.'
What is a reasonable time for a Calderbank offer to remain open will vary with the nature, complexity and procedural stage the case has reached, the issues in dispute, and the closeness of the offer to the trial date. While there are cases in which an offer has been found to have been reasonably made shortly before or during a trial, the Full Court of the Supreme Court of West Australia cautioned in Maclean v Rottnest Island Authority [2001] WASCA 323 that, at [16]: "[T]he Court should not encourage the use of a Calderbank letter delivered shortly before trial when the other party might reasonably be expected to have their minds on a number of matters. The use of a Calderbank letter is an aid to the administration of justice and should be encouraged. Its use as an indiscriminately wielded tactical weapon should be discouraged."
The time allowed for the builder to accept Calderbank offers made by the homeowner is an issue when considering costs in this case. The analogous procedure of an offer of compromise under the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) requires that where an offer is made two months or more before the trial date, then the closing date for the offer "is to be no less than 28 days after the date on which the offer is made". If closer to trial: the offer should allow a "reasonable time" for acceptance see r 20.26(5).
While the UCPR's do not apply in the Tribunal, the offer of compromise procedure is analogous to the common law relating to Calderbank offers, and provides an illustration of how the time expectations relating to offers change given the stage of the proceedings. While there is no minimum time within which a Calderbank offer must be accepted, in Whitaker v Paxad Pty Ltd [2009] WASC 47 Blaxell J, at [35], found that an offer open for 7 days was "insufficient for the defendants to properly consider the prospects of their case and the potential value of the damages sought, as against the likely costs should the claim fail." In contrast, in Brymount Pty Ltd v Cummins (No 2) [2005] NSWCA 69 the Court of Appeal considered a Calderbank offer made well before trial which was open for acceptance for 14 days. Beazley JA, with whom Ipp and McColl JJA concurred said at [15]: "The Council's offer was open for 14 days. This period was less than that provided for in both the Supreme Court and District Court Rules (see SCR Pt 22 r 3; DCR Pt 19A r 4), but Calderbank offers are not subject to the limitations imposed by the Rules. Fourteen days is not a generous period to allow for consideration of an offer, but it is not so short as to be unreasonable."
The submissions raised by the homeowner in this case also calls for a consideration of whether costs, especially those relating to the original proceedings, should be apportioned on the basis of the outcome of significant issues determined in favour of the parties. In Sandoz Pty Ltd v H Lundbeck A/S (No 2) [2021] FCAFC 47 at [57] the Full Court of the Federal Court explained: "We do not consider the power to order that a successful party pay costs in relation to discrete issues on which it failed may only be exercised in circumstances where the successful party's reliance on such an issue was unreasonable. There may well be other factors that fall short of what might be characterised as unreasonable conduct which may lead the Court to conclude that justice requires that the successful party pay some part of the unsuccessful party's costs. However, we do accept that the Court will exercise particular caution before ordering a party who successfully defended a proceeding to pay the unsuccessful party's costs even where the issues upon which the successful party failed are (as here) sufficiently separate from those upon which it succeeded."

Evidence relating to the costs issues.

The parties have filed, together with their submissions on costs, the following additional evidence relating to the costs issue: 1. Affidavit of Peter Zacharatos, the homeowner's solicitor, sworn 6 June 2024 with exhibit PZ-1. 2. Affidavit of Peter Jones, the homeowner, sworn 7 June 2024 with exhibit PJ-1. 3. Affidavit of Thomas Dive, the builder's solicitor, sworn 27 June 2024.
We have had regard to that evidence in considering this decision, together with the material relied on in the appeal.

The offers relied on by the homeowner.

The homeowner made a series of offers to the builder both before and during the litigation between them. He relies on three of them in his submissions: 1. The 2020 offer; 2. The January 2023 offer; and 3. The December 2023 Calderbank offer.
We will consider them separately.

The 2020 Offer

In paragraph 10 of his costs submissions the homeowner referred to an offer that was made shortly after the dispute arose, and the day after the parties had met to discuss the situation. On 10 September 2020, following that meeting, the homeowner says that he offered to pay the Builder the amount of $64,657.64 in final satisfaction of all outstanding amounts (the 2020 Offer). The builder did not accept the offer.
More than a year would pass after that offer before proceedings issued.
On examination of the relevant documents, we could not find an offer by the homeowner to settle for $64,657.64. This led us to request the parties to direct us to the relevant evidence of the offer when we made our directions of 9 August 2024. The homeowner responded thus, at [23]: 23. As set out in the footnotes to Mr Jones' submissions dated 7 June 2024 (see FN1), the email of 10 September 2020 refers to the offer to settle for "…your initial quote of $46,500 plus $44,700 ("Cremorne extra hours detailed" - Sep 4, 2020, 596 hours at $75.hr (hours and materials)), totaling $91,200": see PJ-2 p5. This offer, taking into account amounts already then paid in relation to the Builder's works, was for a further payment of $64,657.84 to the Builder as set out in the final column of the "Cost Breakdown" at PJ-2 p9. The email on 10 September 2020 (PJ-2 at p5) had attached to it two attachments: see PJ-2 p6, one of which was a word version of the email (PJ-2 at p8) and the other the excel worksheet setting out the quantification of the offer (PJ-2 p9). The excel worksheet on p9 of PJ-2 under the heading "Cost Breakdown" sets out the "Outstanding Total Owing to MAK Constructions" in the amount of $64,657.64. An extract of PJ-2 p9, with highlighting to show the relevant offer figure, is below.
The accompanying email of 10 September 2024 from the homeowner to the builder referred to two "settlement offers," neither of which included an offer to pay the builder $64,657.64. The only place that figure appears is in the cost breakdown as shown above. While the homeowner states in his affidavit that he offered to pay that amount, there is no express offer to pay $64,657.64 by way of settlement in the email or the spreadsheet. Such an offer is not readily apparent from the materials.
We do not accept that this was a clear, open offer to settle. If there was an offer, it certainly does not qualify as a Calderbank offer as it does not make any reference to costs (remembering proceedings were still a year away) and is not expressed to be "without prejudice as to costs:" see MT Associates Pty Ltd v Aqua-Max Pty Ltd (No 3) [2000] VSC 163 at [125] per Gillard J.
Consequently, we will disregard the 2020 offer when considering costs orders in the proceedings.

The January 2023 offer

This offer was made the day after the Tribunal made the preliminary ruling, which had again limited the boundaries of the builder's quantum meruit claim. In the ordinary course of events, the next hearing date would not have then been known to the parties. The issues would have been fresh in the minds of the parties and their advisors, following the preliminary hearing and decision the day before. The letter of offer contains a considered analysis of the builder's quantum meruit claim as it then stood and of the potential liability to which the homeowner was exposed, analysed item by item. This pointed to difficulties confronting the builder in establishing its case. The homeowner offered to settle the proceedings for $65,000 in full and final settlement of the proceedings, with each party to bear their own costs. It also proposed a clear method for implementation of the proposed settlement. The offer remained open to 5pm on 23 January 2023 and was stated to be made in accordance with the principles in Calderbank v Calderbank [1976] Fam 93. It cautioned: "If this offer is refused and the Builder does not achieve a result that is more favourable at the final hearing our client may rely on this letter in support of an application for costs, including that those costs be paid on an indemnity basis."
In submissions, the builder argued that this offer was "replete with infelicities and so vague within its terms that it was likely to be rendered unenforceable." We do not accept this submission. In our view the offer is clear, tightly drafted and unambiguous. The proceedings had reached the point where the builder's entitlement to recover on a quantum meruit was to be assessed on a basis clearly defined by the Tribunal. Issues such as the builder's entitlement to a builder's margin and to claim additional sums for work already paid for had already been dismissed. What was left was claims for outstanding invoices. The builder's potential for success lay within defined boundaries, as the homeowner pointed out in the Calderbank letter.
In our view the 2023 offer met the requirements of a Calderbank offer. It was a genuine and well-considered offer. While we have concerns regarding the length of time the offer was open for (being sent on a Friday and closing on the following Monday week in January i.e. 11 inclusive days) we think it just sufficient in the context of the Tribunal proceedings, and the stage they had reached: immediately following the preliminary hearing when the issues were known and clearly delineated. If the outstanding issues had not been considered and delineated in a hearing the day before the offer was made, so that those involved had to refamiliarize themselves with them, we may have taken a different view as to the reasonableness of the time allowed.
In submissions, the builder explained his failure to respond to the offer thus: "The Owner had taken every conceivable point in defending these proceedings. By reason of the way that the matter had been conducted by the Owner in challenging the Builder's very entitlement to be paid on a quantum meruit for work that he plainly benefitted from, at the cost of the Builder, the Builder had already incurred invoices totalling $103,211.02. What is being put by the Owner is that, notwithstanding the fact that the 2 day hearing in which the Builder was roundly successful, that refusal of an offer that would see the Builder barely cover 60% of its costs (and none of its actual claim) would be unreasonable."
Two points need to be made about this submission: 1. Where, as occurred here, a builder does uninsured building work, then s 94 of the HBA prevents it recovering money in respect of that work without leave to recover on a quantum meruit basis being obtained from the Tribunal. 2. The costs incurred by the builder to date, when the January 2023 offer was made, were no doubt reflective of those incurred by the homeowner. Regrettably, both had likely reached the point where their costs exceeded the amount in dispute, making the litigation both very expensive and likely futile.
In the event, the builder received a better outcome from the 2023 decision, in which it recovered $78,588.51, than the homeowner had offered it. That amount, however, was reduced to to $19,005.40 on appeal, when we accepted most of the arguments advanced by the homeowner in the January 2023 offer. This meant that on appeal the builder achieved an outcome much worse that it would have received, if it accepted the homeowners offer of $65,000, with each party to bear their own costs.
Looked at from the perspective of the builder at the time the offer was made, given the amount of the offer, and the relative strengths of the parties cases, the builder's refusal of the offer of $65,000 was unreasonable.

The December 2023 offer.

This offer was contained in an email sent on 18 December 2023 from the homeowner's solicitors to the builder's solicitors. At that time both the homeowner and the builder had lodged appeals against the 2023 decision of the Tribunal. The hearing of both appeals had been fixed for 19 February 2024.
The costs decision was published on 19 December 2023, while the offer was being considered. This is a matter that was out of control of the parties.
The letter of offer bears the hallmarks of a Calderbank offer. It is headed, "Without prejudice save as to costs". It was expressed to relate to, "both Appeals and any residual costs questions on the appeals and the proceedings." The costs decision with respect to the original proceedings only became known during the time the builder had to consider the offer. The letter offered to settle the claim made against the homeowner by the builder for the sum of $80,000 comprised of: 1. $73,939.01 with respect to the quantum meruit claim; and 2. $6,060.99 towards the builder's costs; which was to be partly satisfied by the builder's retention of $19,971.51 already paid to it, resulting in a payment to the builder of a net $60,028.49. There was to be no order for costs with respect to the appeals and the initial proceedings.
Once again, the letter of offer contained analysis of the builder's quantum meruit claim and of the potential liability to which the homeowner was exposed, as well as the difficulties confronting the builder. It proposed a clear method for implementation of the proposed settlement. The offer was expressed to remain open to 5pm on 22 December 2023 and was stated to be made in accordance with the principles in Calderbank v Calderbank.
The offer was emailed to the homeowner's solicitors on Monday 18 December 2023 at 1:41pm. The hearing date of the appeals was then two months away. It required acceptance by 5pm on 22 December 2013. This gave the builder four and a half days to consider the offer, reflect on its position and decide whether or not to accept it. This in the week leading up to Christmas, a notoriously busy time for legal practices. When the offer was made the parties were not yet due to file their respective replies in the appeals and the costs outcome was not known. The replies were due on 20 December 2024, halfway through the offer period. Only when the replies were received and considered would the parties be in a position to fully understand the issues on appeal. In those circumstances we agree with the builder that it was not given a reasonable time in which to consider the December 2023 offer, and that offer therefore does not operate as a Calderbank offer.
We add that, if the offer did operate as a Calderbank offer, the builder's failure to accept it - given the size of the award he had achieved below and the costs order in his favour - was reasonable, especially as the offer was expressed to relate to all proceedings, not just the appeal.

Consideration

We now turn to consider the issue of costs in the various proceedings, in the light of our conclusions regarding the offers made by the homeowners.

The Builder's appeal.

The appeals were heard on Monday 19 February 2024. The builder's appeal was withdrawn at the commencement of the hearing. The homeowner was informed of the withdrawal on Saturday, 17 February 2024.
The homeowner submits that the builder should pay its costs of that appeal on an indemnity basis because the outcome of the builder's appeal has left the builder in a worse position than it would have been had it accepted any of the three offers made by the homeowner: the 2020 offer, the January 2023 offer and the December 2023 offer.
Of these only the January 2023 offer has been found to be a Calderbank offer which the builder unreasonably did not accept. The other two offers are not to be properly regarded as Calderbank offers, and therefore do not carry the costs consequence of exposing the builder to the risk of having a costs order made against it on an indemnity basis.
The January 2023 offer was made when the final assessment of the quantum meruit claim in the initial proceedings before the Tribunal was not known. The offer was expressed to relate to "the proceedings against [the homeowner] by [the builder]," not to any subsequent appeals, whether commenced by the homeowner or the builder. The offer, on its face, only related to the initial proceedings before the Tribunal, not to the subsequent appeals. We are reinforced in this conclusion by the fact that the homeowner subsequently made the December 2023 offer, which was expressed to relate to both appeals and the initial proceedings before the Tribunal.
The homeowner also submitted that he has occasioned significant costs in preparing a reply and submissions, and in preparing for the appeal hearing, with respect to the builder's appeal. This has been exacerbated by the late withdrawal of that appeal by the builder, and are costs that have been unnecessarily incurred. The builder has not addressed that issue in submissions. Generally, the builder has taken issue with the effect of the December 2023 offer, and has submitted that no order for costs should be made in the circumstances.
We have concluded that the builder should pay the homeowner's costs of the appeal on an indemnity basis. Not because of any Calderbank offer, but because the builder, by bringing an appeal which it withdrew at the last minute, has caused the homeowner to unnecessarily incur additional costs which have been wasted by the withdrawal.

The homeowner's appeal.

The homeowner seeks an order that the builder pay the costs of the homeowner's appeal on an indemnity basis. In this instance, the homeowner relies on builder's failure to accept the December 2023 offer as giving rise to an entitlement of costs on an indemnity basis, in accordance with Calderbank principles.
For the reasons we have already given we do not accept that the December 2023 offer is one to which the Calderbank principles applied, as the offer was not open for a reasonable time. Further, if we are wrong about that, the builder's rejection of the offer was reasonable as discussed above.
In our view the homeowner is entitled to the costs of his successful appeal on the ordinary basis only.

The costs of the initial proceedings.

The emergence of the settlement offers made by the homeowner to the builder, both before and during the course of proceedings relating to this building dispute, has necessitated us reconsidering the costs order made by the Tribunal due to the significant reduction in the amount awarded to the builder on appeal. As the builder had achieved a result at first instance, which was better than any of the offers made by the homeowner, it was not necessary for the Tribunal below to consider those offers when determining who should pay the costs of the initial proceedings. Only when the amount awarded to the builder was reduced on appeal, so that the offers made by the homeowner exceeded the amount awarded to the builder, did the need to consider those offers and their impact on the parties entitlement to costs orders, come into play. We have therefore reconsidered the issue of costs as a necessary consequence of our decision on appeal.
With respect to the initial proceeding, we have determined that the January 2023 offer was an offer that complied with the principles in Calderbank v Calderbank, and that the builder unreasonably refused it at that time. Following the appeal he has received substantially less than the amount offered in that Calderbank offer.
The homeowner submits that the builder's unreasonable failure to accept that offer justifies an order that the builder should pay the homeowner's costs of the initial proceedings, from the date of the offer onwards in accordance with Calderbank principles. The builder takes issue with this, arguing that the builder was successful in the initial proceedings (receiving an order in its favour initially and on appeal) and that costs should follow the event.
The homeowner also submits that he should also be awarded the costs of the hearing on 12 January 2023, which led to the Tribunal making the preliminary decision further refining the scope of the builder's quantum meruit claim. The basis on which this argument is put is that the homeowner was entirely successful with respect to the issues determined in the preliminary decision. This is not disputed. Furthermore, the homeowner says that costs order should be made on an indemnity basis in the light of the 2020 offer.
We have already decided that the 2020 offer is not one which complies with Calderbank principles, and that it does not give rise to an arguable entitlement to indemnity costs.
The builder takes issue with the homeowner's claim with respect to costs relating to the preliminary decision. It argues that the preliminary decision was a step along the way towards the ultimate outcome of the proceedings (in which it received an order in its favour). Costs should follow the event. There should be no apportionment based on the outcome of significant issues.
In this regard we note that the Tribunal below specifically considered the issue of apportionment between issues raised by the homeowner and rejected his submissions with respect to apportionment. The Senior Member found at [18]: "Despite the owner's submissions which legitimately refer to the areas where the builder was not successful, I find that the position in these proceedings comes within the category of it being appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed."
We are reconsidering the costs decision because of the need to factor in offers that have become an issue potentially affecting costs following the reduction in the builder's quantum meruit claim. We can see no basis in those circumstances for departing from the Tribunal's conclusion regarding apportioning costs between issues.
The January 2023 offer was a valid Calderbank offer which the builder unreasonably ignored and is taken to have rejected. The final outcome of the proceedings, following the homeowner's appeal, is that the builder is considerably worse off than he would have been if he had accepted that offer. In those circumstances, the owner is entitled to his costs on an indemnity basis from the date of closure of the offer. Similarly, the builder is entitled to an order for its costs until the closure of the January 2023 offer on the ordinary basis,
We conclude we should set aside the costs decision made on 19 December 2023 and instead determine that: 1. The builder is entitled to an order that the homeowner pay its costs of the proceedings on the ordinary basis up to and including 18 January 2023, which was the closing date of the January 2023 offer; and 2. The owner is entitled to an order that the builder pay his costs of the proceedings on an indemnity from 19 January 2023 onwards.

Conclusion

The Appeal Panel makes the following orders. 1. A hearing on the questions relating to costs is dispensed with. 2. The builder shall pay the homeowner's cost of the builder's appeal in matter number 2023/00347930 on an indemnity basis. 3. The builder shall pay the homeowner's cost of the homeowner's appeal in matter number 2023/00337063 on the ordinary basis. 4. The decision of the Tribunal made on 19 December 2023 in matter number 2021/ 378509 (previously HB 21/41447) is set aside and in lieu thereof the Appeal Panel makes the following orders: 1. The homeowner pay shall pay the builder's costs of the proceedings up to and including 18 January 2023, on the ordinary basis. 2. The builder shall pay the homeowner's costs of the proceedings on an indemnity from 19 January 2023 onwards on an indemnity basis. 1. If any of the costs ordered above are not agreed they are 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.

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: 24 September 2024

Home Building Act 1984(NSW)

At a glance

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Decision date

Before

Source

Judgment (17 paragraphs)

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Legislation Cited (4)

Cases Cited (43)