Longbottom v Boughton

What provisions apply to the costs applications?

1. The general rule in relation to costs in the Tribunal is that unless special circumstances are established, the parties pay their own costs: s 60(1) of the NCAT Act.
2. However, rule 38 of the Civil and Administrative Tribunal Rules 2014 (the NCAT Rules) modifies the application of s 60 such that in proceedings before the Consumer and Commercial Division the Tribunal may award costs in the absence of special circumstances warranting such an award if the amount claimed or in dispute in the proceedings is more than $30,000. Rule 38A modifies the position in respect of appeals by directing that the Appeal Panel must apply the first instance costs provisions when deciding whether to award costs in relation to the internal appeal.
3. In Allen v TriCare (Hastings) Ltd [2017] NSWCATAP 25 the Appeal Panel found at [57]: Adapting these principles to the circumstances of the present appeals and having regard to the specific wording of r 38, it appears to us that in applying r 38(2)(b): 1. The determinative factor is the amount in dispute in each appeal, not the amount in dispute in the proceedings at first instance; 2. The phrase "in dispute" is to be construed as meaning truly in dispute or at issue or, inversely, not unrealistically in dispute; 3. Whether "the amount … in dispute" in each appeal is more than $30,000 depends on whether there is a realistic prospect that in each appeal the wealth of the appealing party would be changed by more than $30,000 or, put another way, whether the right claimed by the appealing party, but denied by the decision at first instance, prejudices that party to an amount in excess of $30,000;

Builder's submissions on costs

1. The builder sought orders that the home owners pay his costs in a fixed sum or as agreed or as assessed in respect of both appeals, being AP19/46638 and AP19/50591.

Builder's submissions in respect of AP19/46638

1. The builder was the appellant in this appeal and was partially successful.
2. The builder submitted that whilst he succeeded on the basis of only Ground 4, out of 5 Grounds, Grounds 1- 3 would have delivered the same outcome in terms of the monetary result. Grounds 1- 4 all dealt with the question of whether or not the builder was entitled to terminate the contract. On this basic proposition, the builder succeeded in overturning the Tribunal's decision that the builder had wrongfully terminated the building contract.
3. The result was that the builder's liability to the home owners was reduced from $79,245.51 to $51,719.01, a reduction of $27,526.50.
4. The builder submitted that rule 38(2)(b) and rule 38A of the NCAT Rules is enlivened as the amount claimed or in dispute in the proceedings was more than $30,000.
5. Alternatively, the builder submitted that special circumstances arose. First, s 60(2)(c) of the NCAT Act was relevant. He submitted that the relative strength of the claim made by the parties, including whether or not the home owners had a tenable basis for defending the appeal was relevant.
6. The builder contended that given that the home owners conceded that at least variation invoice 1 was payable but had not been paid at the time the builder invoked the home owners' failure to pay as the basis for terminating the contract, the home owners' prospect of defending this ground of appeal, which was ultimately upheld, was extremely weak.
7. Secondly, the builder submitted that s 60(2)(d) of the NCAT Act was relevant. It submitted that the nature and complexity of the proceedings was great. A number of complex issues, both of fact and law, were involved. This required the builder's submissions on appeal to be detailed, including having to pay close attention to the evidence led at the hearing at first instance.
8. The builder submitted that for any combination of the above reasons it was appropriate for the Appeal Panel to exercise its discretion to make an order that the home owners pay the builder's costs in AP19/46638.

Builder's submissions in respect of AP19/50591

1. The builder submitted that the amount in dispute in this appeal was $84,074.45.
2. The home owners lost their appeal and there was no basis for departing from the usual rule that costs should follow the event.
3. Whilst not relevant, the builder submitted that in any event this appeal of the home owners was misconceived or lacking in substance, which is relevant pursuant to s 60(3)(e) of the NCAT Act.

Fixed sum costs

1. The builder sought a fixed sum costs order in respect of both appeals. It referred to paragraph 75 of the Tribunal's Guideline on internal appeals in which was stated that an application for costs should where possible be accompanied by a precise statement of the amount of costs actually sought.
2. In that Guideline the Tribunal stated that "this may assist to reduce further costs being incurred in assessing any costs awarded".
3. In accordance with the Guideline, the builder stated that his solicitor's costs on both appeals were $28,307.20 plus GST ($31,137.92 incl GST). His disbursements on both appeals were $30,399.60 made up of: counsel's fees of $26,760.00 plus GST; NCAT filing fee of $429.00 GST free; and solicitor's accommodation, parking and travel for hearing of $534.60.

Home Owners' submissions

1. We summarise below the home owners' submissions of 6 and 20 April 2020.

The home owners' offers dated 14 February 2017 and 6 November 2019

1. In a "without prejudice save as to costs" letter of 14 February 2017 the home owners made two offers of settlement in the alternative.
2. The first offer required the builder to set out what work had been completed and what work remained. The home owners would then have the right to elect to have the builder continue to perform the remaining work or not. If they elected to have the builder continue, they would pay him $15,000 for progress claim 3, on the basis that variations 1, 2 and 3 were withdrawn. They would pay him $26,823.50 upon practical completion being reached. This offer gave the builder the right to return to complete the work.
3. The alternative offer in the letter of 14 February 2017 was to the following effect. The home owners would pay the builder $6,000 and the builder would not be required to do any further work or rectification. Each party would provide to the other mutual releases from all claims. The releases, however, would exclude claims of the home owners to enforce the statutory warranties under s 18B of the Home Building Act 1989 (NSW). Both offers of 14 February 2017 were required to be accepted within seven days.
4. In respect of the fact that the offer expired prior to the hearing at first instance and was not renewed prior to the appeal, the home owners relied on Ettingshausen v Australia Consolidated Press Limited (1995) 38 NSWLR 404 for the proposition that a pre-trial offer has effect following the conclusion of a trial, and any successful appeal, irrespective of whether it has been reviewed or renewed. The home owners stated that the offer of 14 February 2017 should continue to have effect on costs in respect of the appeal proceedings..
5. The home owners contended that the effect of the offer of 14 February 2017 should be that the builder be ordered to pay the home owners' costs of both appeals, or, in the alternative, the builder's appeal. This was on the basis that even after the builder's partial success in respect of his appeal, the builder would still have been better off if he had accepted the offer of 14 February 2017.
6. The home owners also referred to their "without prejudice, save as to costs" offer of settlement dated 6 November 2019. The relevant terms of this offer were, first, that it noted that the amount in dispute of the appeal was $29,477.70 which was currently held in the builder's solicitor's trust account.
7. Second, the proposal was that of this amount $20,000 was to be paid to the home owners and the balance, $9,477.70 was to be paid to the builder. The substance of the offer therefore was for both appeals to be dismissed in return for the builder being provided the additional sum of $9,477.70 compared with his position arising out of the orders of the Tribunal at first instance.
8. The home owners referred in this settlement offer to the decision in Ismail v NSW Land and Housing [2014] NSWSC 1434 in respect of the validity of pre-litigation settlement offers.

Builder's appeal

1. The home owners contended that the amount initially in dispute was $29,477.71 and this amount was further reduced to $27,446.44 in the builder's written submissions dated 28 November 2019. Accordingly, the builder contended that the amount in dispute in respect of the builder's appeal did not exceed the necessary threshold of $30,000.
2. The home owners contended that there were no special circumstances that would justify the making of a costs order in favour of the builder. Accordingly, there was no justification to depart from the rule that each party pay their own costs.
3. The home owners denied that their defence to the appeal should be regarded as being "untenable" for the purposes of the special circumstances test: citing Bearup v Challenor Marine Services Pty Ltd [2019] NSWCATAP 225.
4. In the alternative, the home owners submitted that there ought be a significant reduction to reflect the fact that the builder had enjoyed a low level of success, one ground out of five put forward: citing Harris v Marabito Holdings Pty Ltd (t/as Mark Marabito Constructions) [2018] NSWSC 1353.
5. Lastly, the home owners contended that the builder had unreasonably prolonged his appeal by his amended notice of appeal, the contents of which was not raised until the day of the hearing. The home owners submitted that the ground upon which the builder succeeded was only raised in the amended notice of appeal. It was contended that the delays in the propounding of the amended notice of appeal led to the hearing of the appeal being prolonged from half a day to a full day hearing and then additional delays occurred from the requirement for the parties to file further submissions and submissions in reply.

Home owners' appeal

1. The home owners conceded that in respect of their appeal the amount in dispute exceeded $30,000 and that costs could be awarded in the absence of special circumstances.
2. The home owners contended that the builder was at all times committed to his appeal and the home owners subsequent appeal did not significantly impact on that process, or the costs flowing therefrom. Accordingly, the home owners sought that each party pay their own costs in respect of the home owners' appeal.

Fixed sum costs order

1. The home owners contended that the builder's costs as disclosed in their submissions are exorbitant and significantly disproportionate to the matters in dispute. By way of comparison, the home owners contended that their solicitor's costs inclusive of both appeals are $14,836.00 plus GST representing approximately 50% of the builder's claimed solicitor's costs. They also contended that the lodgement fee for their own appeal was $430.72 and solicitor's disbursements, excluding counsel's fees, consisted simply of parking for the hearing at $50.
2. The home owners contended that the cost order sought by the builder directly contradicts the requirements of s 60 of the Civil Procedure Act 2005 (NSW). They also submitted that there was no evidence to suggest that party/party costs should be allocated at 75% of the solicitor's actual costs.

Builder's submissions in reply

1. The builder informed the Appeal Panel that the Tribunal dealt with the costs of the proceedings at first instance on 14 April 2020 and a copy of the decision was provided to the Appeal Panel.
2. In respect of the home owners' Calderbank offer of 14 February 2017, the builder made the following submissions: 1. The builder relied upon his submissions on costs at first instance for resisting an order for indemnity costs based upon the offer of compromise of 14 February 2017. 2. The builder relied upon the decision of the Tribunal at first instance of 14 April 2020 where it determined that there is no basis for a special order for costs based upon the letter of 14 February 2017. 3. The builder contended that rejection of the offer was not unreasonable as the quotation attached to it referred to defective work including the incorrectly pitched roof (upon which the home owners were not successful) and its provisions did not provide sufficient releases for the builder in relation to defective work as the provisions of the Home Building Act cannot be contracted out of. 4. The period of time for acceptance, being seven days, was not reasonable and the dispute was not fully and properly crystallised at the time of the correspondence, particularly in relation to the magnitude of defective work. 5. Whilst the prelitigation offer of settlement can apply to an appeal, it does not apply in vacuo and should not apply here. 6. The home owners chose to launch their appeal which failed and, in respect of the builder's appeal, they could have always made the obvious concession in respect of the ground of appeal which succeeded but they did not. 7. Accordingly, the costs incurred on appeal, as a matter of fairness and in consideration of the responsibility of the parties in incurring those costs, must lie at the feet of the home owners: citing Commonwealth v Gretton [2008] NSWCA 117.
3. The builder submitted that the issue upon which the builder succeeded on his appeal was at all times directly raised in the builder's written submissions and was not only, as alleged by the home owners, raised on the day of the appeal and pursuant to the amended notice appeal. The builder also disputed the home owners' proposition that the hearing time for the appeal was extended from half to a full day "following extensive submissions from the builder". The builder submitted that his appeal was substantially finalised before the lunch adjournment and it was the home owners' appeal which was dealt with in the afternoon and resulted in the time for the hearing needing to be longer.
4. The builder disputed the proposition that there was no significant further costs incurred as a result of the home owners' appeal. There was the requirement to prepare submissions and to deal with the issue at the hearing in respect of the home owners' appeal.

The settlement offers of 14 February 2017 and 6 November 2019

1. Senior Member Ross in the Tribunal's decision of 14 April 2020 dealt with the question of whether or not the settlement offer of the home owners of 14 February 2017 should have an influence on the determination of costs of the hearing before her. In that decision the Tribunal stated the following: 18 The homeowners made two offers: Offer 1 19 This offer required the Builder to decide what work had been completed, and what work remained. The Homeowners would then elect whether to have the Builder continue. If so, they would pay him $15,000 for progress claim 3, on the basis that variations 1, 2 and 3 were withdrawn. They would pay him $36,823.50 upon practical completion being reached. 20 This offer gave the Builder the right to return to complete the work. However, as a settlement offer, it contains a number of preconditions which make it inappropriate for me to consider further. Offer 2 21 The Homeowners would pay the Builder $6,000, the Builder would not be required to do any further work or rectification and each would provide mutual releases (excluding claims under s 18B of the Home Building Act). 22 The difficulty with this offer is that it at the same time provided for a release in respect of defective work, whilst maintaining the Homeowners' rights to enforce the statutory warranties (which the parties cannot contract out of). The Builder ultimately obtained an award, in respect of monies claimed to be owing to him, which exceeded the payment offered. I am satisfied that it was not unreasonable for the Builder to reject this offer, as it provided no certainty in respect of the releases, whilst giving him less than he ultimately received on his own claim.
2. We agree with the reasoning and conclusion of the Tribunal, in respect of this offer of settlement. Accordingly, we place no reliance on this offer of settlement in respect of the determination of this costs application.
3. We also place no reliance on the offer of settlement of 6 November 2019 in respect of our determination of this costs application because the builder achieved a better outcome on appeal than was provided for in this offer of settlement. Accordingly, we cannot conclude that it was unreasonable for the builder to reject this offer.

The Builder's appeal

1. The builder on appeal succeeded in having the amount payable by him to the home owners reduced from $79,245.51 to $51,719.01, a difference of $27,526.50. In addition, the builder sought $3,727.45 for loss of profits, being the amount which it previously sought at the hearing at first instance. This claim was rejected by the Appeal Panel on appeal.
2. Further, the builder sought on appeal interest on the outstanding payments to which he was entitled in respect of variation 1 (in the sum of $4,330), variation 2 (in the sum of $3,820) and the amount of loss of profits. This was also unsuccessful before the Appeal Panel.
3. In our view, these additional unsuccessful claims on appeal were "truly in dispute or at issue, inversely, not unrealistically in dispute". Therefore, in our view there was a realistic prospect in the builder's appeal that the wealth of the appealing party would be changed by more than $30,000 or that the right claimed by the builder, but denied by the decision at first instance, prejudices the builder to an amount in excess of $30,000: see Allen v TriCare (Hastings) Ltd [2017] NSWCATAP 25 at [57].
4. Accordingly, pursuant to s 60 of the NCAT Act and rule 38A of the NCAT Rules, the Appeal Panel can award costs in the absence of special circumstances.
5. Rule 38(2)(b) gives us a wide discretion to make an order for costs. It does not specify the factors we must take into account in exercising the discretion, although the discretion must be exercised judicially. In Thompson v Chapman [2016] NSWCATAP 6, the Appeal Panel discussed the exercise of the discretion, stating at [69] to [72]: 69. 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 in their favour: see Latoudis v Casey [1990] 170 CLR 534 per Mason CJ at 554 and Oshlack v Richmond River Council per McHugh J at 97. 70. The reason for such an order is that it is appropriate for the party who incurred costs caused by the other party in litigation to be reimbursed. Further, an award of costs is by way of an indemnity to the successful party and not as punishment of the unsuccessful party: see Latoudis v Casey per Mason CJ at 543 and McHugh J at 567 and in Oshlack v Richmond River Council per Brennan CJ at 75. 71. Where there is a general discretion for costs there is no absolute rule that, absent disentitling conduct, a successful party is to be compensated by the unsuccessful party nor is there any rule that a successful party might not be ordered to bear the costs of an unsuccessful party: see Oshlack v Richmond River Council per Gaudron and Gummo JJ at 88 and Kirby J at 121 - 123. 72. 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. However it is clear from the authorities that factors that might influence whether the usual order for costs should apply and, if so, to what extent include: (1) Whether, by reason of the relative success of the parties on different issues and the time taken to determine those that an order for costs based on issues should be made: see for example Bostick Australia Pty Ltd v Liddiard (No 2) [2009] NSWSCA 304; and (2) Whether, by reason of the nature of the proceedings the usual rule should otherwise be displaced in whole or in part: see Oshlack v Richmond River Council per Gaudron and Gummo JJ at 41 - 44.
6. In our view there is no reason to depart from the usual rule that costs should follow the event. We reject the submission that the builder prolonged the hearing of the appeal or that his grounds of success were limited.
7. We agree with the builder's submission that Grounds 1- 4 were essentially to the same effect that the builder had lawfully terminated the contract and that the Tribunal at first instance erred in this regard. There was a substantial overlap in the submissions and the evidence referred to in each of these grounds.
8. The monetary consequences of success on any one of these grounds were essentially the same. Accordingly, success on Ground 4 largely sounded in the same result compared with success on any of the other Grounds 1- 3. In our view, there should not be a reduction in the costs awarded to the builder for succeeding on Ground 4 out of the first four grounds. Ground 5, the claim for interest, was relatively small in comparison to the other grounds and engaged minimal time in the appeal. In our opinion, the builder's lack of success on that ground does not, of itself, warrant any reduction in the costs awarded to the builder.
9. We agree with the builder that the submission upon which he ultimately succeeded on appeal was within the grounds of the original notice of appeal and covered in the original written submission. The Appeal Panel, however, independently sought clarification as to how that Ground 4 specifically dealt with the invoices for variations 1 and 2. Consequently, it directed further written submissions on this point and an amended Ground 4 in the notice of appeal to deal specifically with the question of those invoices, even though in our view, this was already contained within the original notice of appeal and written submissions. We note that the home owners' counsel did not claim to be prejudiced by this course of action nor did he claim to be taken by surprise by the proposed amended Ground 4.
10. Accordingly, in our view, this does not form a basis for departing from the usual rule that costs should follow the event.

The home owners' appeal

1. It was not in dispute that the amount claimed or in dispute in respect of the home owners' appeal was in excess of $30,000.
2. Accordingly, an award for costs in respect of this appeal does not require special circumstances.
3. We do not agree with the home owners' submission that the home owners' appeal did not significantly add to the costs of the appeal as a whole. In any event, we have decided that in respect of the builder's appeal the home owners should be ordered to pay the builder's costs.
4. There is no basis in our opinion for departing from the usual rule that the home owners should pay the builder's costs of the home owners' appeal.

Fixed sum costs order

1. In s 60(4)(a) of the NCAT Act the Tribunal is given a discretion to determine "to what extent costs are to be paid". It has been held that this empowers the Tribunal to make a fixed sum costs order, if that is an appropriate course: see, for example, 203 Castlereagh Street Pty Ltd v Skybloo Holdings Pty Ltd [2017] NSWCATAP 29 at [35].
2. The words "to what extent costs are to be paid" are also contained in s 98(1)(b) of the Civil Procedure Act 2005 (NSW) (the CP Act). Given the similarity in wording between s 60(4)(a) of the NCAT Act and s 98(1)(b) of the CP Act, it has been held that decisions of the Supreme Court of New South Wales concerning fixed sum costs orders provide helpful guidance for the Tribunal when determining whether to make a fixed sum cost order, as sought in the case before us: see 203 Castlereagh Street at [38].
3. The principles concerning when a court might make a fixed sum costs order, or "gross sum costs order" as described in s 98(4) of the CP Act, have been set out in some Court of Appeal decisions, including: Hamod v State of New South Wales [2011] NSWCA 375 at [813] ff; eInduct Systems Pty Ltd v 3D Safety Services Pty Ltd (No 2) [2015] NSWCA 422 at [8] ff [30]; and Kostov v Zhang (No 2) [2016] NSWCA 279 at [90] ff.
4. The Appeal Panel in 203 Castlereagh Street summarised the principles in these cases at [40] - [41]: 40. These principles, relevantly adapted to the circumstances of the Tribunal, include: 1. A fixed sum costs order involves a departure from the usual process by which costs are assessed in accordance with the statutory procedures now relevantly found in the Legal Profession Uniform Law Application Act 2014 (NSW) (especially Pt 7 dealing with "ordered costs") and the Legal Profession Uniform Law (NSW), eInduct Systems at [8]; 2. A fixed sum costs order may be appropriate where: 1. the sum of costs in question is relatively modest, eInduct Systems at [30]; 2. a party obliged to pay the costs would not be able to meet a liability of the order likely to result from the assessment, Hamod at [813], [816] and [817], eInduct Systems at [30]; 3. the assessment of costs would be protracted and expensive, Hamod at [813] and [817]; and/or 4. the case was complex, Hamod at [815]-[817]; 3. Sections 36(1) and (4) of the NCAT Act (which can be seen as equivalent to those in ss 56(1), 57(1)(d) and 60 of the CP Act) suggest that the following factors merit particular consideration: 1. the relative responsibility of the parties for the costs incurred; 2. the degree of any disproportion between the issue litigated and the costs claimed; 3. the complexity of the proceedings in relation to their cost; and 4. the capacity of the unsuccessful party to satisfy any costs liabiltity, Hamod at [816], Kostov at [22]. 4. An order for fixed sum costs should be based on an informed assessment of the actual costs, having regard to the information before the Tribunal. Furthermore, the approach taken to estimate the costs must be logical, fair and reasonable. This may involve an impressionistic discount of the costs actually incurred in order to take into account the contingencies that would be relevant in any formal costs assessment, Hamod at [820]; 5. The power to make a fixed sum costs order should only be exercised when the Tribunal considers that it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available, Hamod at [813], Kostov at [23]; 41. Examples of the type of material that should be available if a fixed sum costs order is to be made can be found in the decisions in Colquhoun v District Court of New South Wales (No 2) [2015] NSWCA 54 at [7] and SAB Closed 1 Pty Ltd v Bees & Honey Pty Ltd; Bees & Honey Pty Ltd v SAB Closed 1 Pty Ltd [2015] NSWSC 1162 at [10]. The types of supporting material usually required include: 1. the timing and nature of costs incurred, including details of the work done, the hours worked, the hourly rates actually charged and, in the case of counsel's fees, similar details concerning the work done by counsel; 2. the rates at which counsel, other lawyers and other professional advocates, if relevant, charge; and 3. the amount likely to be recoverable on assessment in the event that that took place, which may be established by "objective arm's length evidence from a costs assessor" (to use the language of Stevenson J in SAB Closed 1 at [10].
5. Wenote the principle that the power to make a fixed sum costs order should only be exercised if the Appeal Panel can do so fairly between the parties. In our view, the material presently before us does not allow us to do so.
6. For example, we do not have the invoices of the builder's legal representatives. Accordingly, we are not in a position to assess what the hourly rates charged were and the extent of the hours expended on each item of legal work in respect of this appeal.
7. Accordingly, we are not in a position to assess with confidence whether the charges claimed would be "a fair and reasonable amount of costs for [the] work" (to use the expression found in s 76 of the Legal Profession Uniform Law Application Act 2014 (NSW)) from the materials before us.
8. Further, we do not have any basis, either from evidence of a cost assessor or even the solicitor appearing for the builder, for concluding that the 75% discount for the solicitors' fees, but not for counsel's fees, is an appropriate discount to arrive at as a fair figure for the award of costs on an ordinary or party/party basis.
9. We note the home owners' contention that their solicitor's costs were much less than that claimed by the builder. We also note that the amount claimed is large compared with the amount in dispute on appeal. These factors also leave us unable to have confidence in being able to arrive at a fixed sum costs order that is fair to both parties.
10. Accordingly for these reasons, we are not prepared to make a fixed sum costs order, but instead will order that costs be payable as agreed or assessed in accordance with the applicable costs assessment legislation.

Conclusion

1. The orders of the Appeal Panel are: In respect of appeal AP19/50591, the orders will be: 1. The appellants are to pay the respondent's costs as agreed or assessed. 2. Pursuant to s 50(2) of the Civil and Administrative Tribunal Act 2013 (NSW) a hearing of the application for costs is dispensed with. In respect of appeal AP19/46638, the orders will be: 1. The respondents are to pay the appellant's costs as agreed or assessed. 1. Pursuant to s 50(2) of the Civil and Administrative Tribunal Act 2013 (NSW) a hearing of the application for costs is dispensed with.

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: 15 May 2020