Middleton v Wrona

NCAT Appeal Panel|2023-09-04

Introduction

On 14 June 2023 the Appeal Panel allowed in part an appeal by the appellant/builder against orders made in favour of the respondents/homeowners. We published reasons for our decision: Middleton v Wrona [2023] NSWCATAP 158 (Primary Decision).
We set aside an order that the builder pay to the homeowners the amount of $65,280.59. We dismissed the appeal in respect of a work order made against the builder requiring demolition and reconstruction of a garage in accordance with the contract between the parties. We made directions for the parties to file and serve any submissions in respect of costs, including on the issue of whether we should make an order for costs in respect of the proceedings at first instance.
These reasons relate to the issue of costs.

The parties' applications and submissions

Each of the parties made primary submissions concerning what costs orders should be made.

Parties' submissions in response

In response to the builder's position on costs the homeowners raise the following matters.
As to the builder's submission that there were separate and distinct issues, independent of each other, the homeowners say that the builder changed its position from that adopted in the proceedings at first instance. The homeowners say that at first instance, in support of the builder's application to transfer the proceedings to the District Court, the builder had submitted there was significant crossover between issues concerning the garage and other defects and the claim for restitution.
As to the alleged "contentious issue in relation to the defects issue", while the homeowners acknowledge they did not wish for a work order to be made, their submissions at first instance were to the effect that they "are content for the builder to undertake reparations under appropriately framed work orders". That is, there was no significant contention concerning whether or not a work order should be made.
In reliance of the decision of the Court of Appeal in James, the homeowners said: … in a case such as this where there are 3 broad issues and a bunch of sub- issues, the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed.
However, the homeowners said an order for costs could be made based on issues. The homeowners then continue that they "were successful on the issue that took up the significant part of the trial, by way of both evidence and argument".
On the other hand, the homeowners said that if a costs order based on issues is inappropriate, an order should be made to award the homeowners the entirety of the costs and that no order as to costs would be an inappropriate outcome. This is because they should be regarded as the successful party, reference being made to various decisions including Rival Nominees Pty Ltd v Craig Davis Constructions Pty Ltd, Supreme Court of Victoria, Full Court, 26 June 1981 (unreported) (Rival Nominees).
In making this last submission, the homeowners said they were 100% successful in their claim at first instance, successful in defeating the builder's stay application and they were successful in 2 out of the 3 issues determined on appeal. This submission appeared to consider the proceedings at first instance and the appeal proceedings as one set of proceedings for the purpose of cost.
As to overall success, having referred to Rival Nominees and the Scott schedule valuing the defects claim and the claim in respect of restitution, the homeowners submitted they "succeeded on a balance sum".
The homeowners again raised the issue of the cross application and the service of additional expert geotechnical evidence as matters about which they have incurred costs. They then submitted: It would wreak an unfair outcome on the homeowners if they, having succeeded on the dominant issue, were also precluded from recovering costs incurred because of the several missteps of the builder. This is especially so having regard to the fact costs were incurred as a result of the builder serving additional evidence on the garage issue, which was the dominant issue and which was lost by the builder at first instance and on appeal.
The homeowners then say that in order "to achieve remediation of building defects at the home property, [they] were required to bring NCAT proceedings". In this regard they say there were defective building works to the garage and to their home, they were "successful as to 100% of the claims on these issues" and should be awarded costs in accordance with the percentage set out in their primary position. Otherwise they should be awarded the entirety of the costs "on the basis they had unrivalled success on the clearly-dominant issue, succeeded on the significant part of the trial in terms of evidence and argument and succeeded on a balance sum".
Finally, in their submissions dated 17 August 2023, the homeowners say: The Tribunal need not "… conduct a minute analysis of the evidence" to determine costs. The homeowners' earlier submissions on costs advanced that it is open to the Tribunal to award them the entirety of their costs, or to determine that having been 100% successful on the defects claim (both at first instance and on appeal), they should have a measure of costs assessed by the them at 80% on the first instance proceedings and 65% on the appeal proceedings, to compensate them for having to initiate and run an NCAT claim to seek a remedy for the ills they endured."
In making these submissions in reply, the homeowners submitted an order should be made dispensing with a hearing on costs pursuant to s 50(2) of the NCAT Act.
As to the builder's submissions in reply, he says there is no inconsistency with the position he adopted concerning his cross application and the application to transfer the first instance proceedings to the District Court and his analysis of the issues in respect of the costs application presently under consideration. The builder says that the cross application was a claim "for undocumented variations". The builder says this would have involved a valuation of the variation work done, a matter relevant to the restitution claim but not the defects claim.
The builder then continued: The extent of defects would only be relevant if and to the extent that the defective work was said to be the subject of an undocumented variation. To the extent that the builder's submission on transfer to the District Court at paragraph 33 suggested otherwise, the submission was incorrect.
As to the issue of whether a work order should be made, the builder noted this issue arose after the hearing and after substantive submissions had been filed by the parties. Up to that point in time the homeowners' claim was a claim for damages.
As to any "crossover" between the defects claim and the restitution claim, the builder says the general submission made by the homeowners does not identify instances where this was the case. The builder contends there was no, or no significant crossover.
As to the defects issue, the builder says this was not a substantial dominant issue. Rather, substantial time was taken up by the homeowners in "an unsuccessful attempt to dispute the price contained in the contract and thus substantiate the claim for overpayment". This challenge, the builder submits, was put in various ways including a claim for damages, a claim for restitution, a claim under the Australian Consumer Law (NSW) and a claim under the Contract Review Act 1980 (NSW).
Otherwise, the builder challenges the submissions concerning: 1. the homeowners being successful under 100% of the claims at first instance; 2. the homeowners' success in connection with the stay application; 3. the homeowners' analysis that they were successful in two out of three issues. The builder says the garage issue "took up a comparatively minor amount of time", and what was the third issue is unclear; and 4. the so-called "flow of funds issue" is not determinative of how the discretion should be exercised, reference being made to the decision of Boden v Gleeson [2013] NSWCA 447.
The builder makes no submission concerning the need for a further hearing.

Consideration

The homeowners said the question of costs can be dealt with on the papers, without a hearing. The builder made no submissions on this matter.
Having received detailed submissions from the parties and having regard to the evidence filed in support of the appeal, including a transcript of the proceedings at first instance, we are satisfied a hearing of the costs application is unnecessary. Accordingly we will make an order dispensing with the further hearing pursuant to s 50(2) of the NCAT Act.

Principles applicable to award of costs

In the proceedings at first instance there was an amount claimed or in dispute greater than $30,000. Consequently, the Tribunal has a general discretion to award costs and it is not necessary to establish special circumstances: r 38 and Bonita v Shen [2016] NSWCATAP 159.
The principles to be applied are stated in Thompson v Chapman [2016] NSWCATAP 6 at [69]-[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 Gummow 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 Gummow JJ at 41 - 44.
As to departing from a general rule that costs follow the event, in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWSCA 304 (Bostik), the Court of Appeal said at [38]: 38 The principles governing the making of an order as to costs so as to reflect the time taken in dealing with a particular issue in which the successful party in the proceedings or on the appeal did not succeed were reviewed by this Court in Elite Protective Personnel Pty Ltd & Anor v Salmon (No 2) [2007] NSWCA 373. Those principles may be summarised as follows: • Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be 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: Waters v P C Henderson (Aust) Pty Ltd (Court of Appeal, 6 July 1994, unreported). • In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument: Sabah Yazgi v Permanent Custodians Limited (No 2) [2007] NSWCA 306 at [24]. A similar approach is adopted on appeal. • If the appellant loses on a separate issue argued on the appeal which has increased the time taken in hearing the appeal, then a special order for costs may be appropriate which deprives the appellant of the costs of that issue: Sydney City Council v Geftlick & Ors (No 2) [2006] NSWCA 374 at [27]. • Whether an order contrary to the general rule that costs follow the event should be made depends on the circumstances of the case viewed against the wide discretionary powers of the court, which powers should be liberally construed: State of New South Wales v Stanley [2007] NSWCA 330 at [18] per Hislop J (with whom Beazley and Tobias JJA agreed). • A separable issue can relate to "any disputed question of fact or law" before a court on which a party fails, notwithstanding that they are otherwise successful in terms of the ultimate outcome of the matter: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [34]. • Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation: James v Surf Road Nominees Pty Ltd (No 2), citing Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 272. These principles were applied in City of Canada Bay Council v Bonaccorso Pty Ltd (No 3) [2008] NSWCA 57 at [22] and most recently in Turkmani v Visvalingham (No 2) [2009] NSWCA 279.
The above principles also apply to the costs of this appeal. This is because r 38A requires the application of r 38 to this appeal. In this regard there was an amount claimed or in dispute in the appeal greater than $30,000: see eg The Owners Corporation Strata Plan No. 63341 v Malachite Holdings Pty Ltd [2018] NSWCATAP 256 and Hanave Pty Ltd v Wine Nomad Pty Ltd; Wine Nomad Pty Ltd v Hanave Pty Ltd [2022] NSWCATAP 153.

Costs of first instance proceedings

There is no suggestion we should not deal with all issues of costs.
The starting point in determining costs of the first instance proceedings is that the homeowners were successful in obtaining some relief. It is clear from the position of the parties that the commencement and prosecution of these proceedings was necessary to enforce the rights ultimately found by the Tribunal, subject to the variation arising from the appeal being successful in part. Prima facie, costs should follow the event and an order should be made in favour of the homeowners.
We reject the submissions of the builder, in connection with the proceedings at first instance, that there should be no order as to costs. The necessity for bringing the proceedings is undisputed, there being no suggestion the builder would have undertaken the works required by the orders of the Tribunal in the absence of such orders.
However, we do think there is a need in the circumstances of this case to make some adjustment to any costs order in respect of the claim for restitution, about which the homeowners were unsuccessful.
The homeowners embarked upon a convoluted process of analysis concerning what occurred. However, in short, they say an order should be made that the builder pay them 80% of the costs incurred in respect of the proceedings at first instance.
This appears to be based on an acceptance that they were unsuccessful on the restitution claim in consequence of our decision on appeal to overturn the award of $65,280.59. It also appears to accommodate the submission that they should have their costs in connection with the cross application which the builder withdrew and the application to transfer the proceedings at first instance to the District Court, which was also withdrawn. In relation to the costs of the cross application and the application to transfer, we note these costs were reserved to the final hearing to be dealt with in the proceedings at first instance to which this appeal relates.
In making these submissions, the homeowners suggested there were three, discrete, issues to be resolved. These were broadly the restitution claim arising from alleged overpayment, the order requiring demolition and reconstruction of the garage and order 2, requiring the builder to rectify other identified defects. As noted in our Primary Decision, order 2 was not the subject of an appeal.
Embedded in the homeowners' submissions were assertions concerning the extent of evidence required in respect of each issue, the amount of time spent at the hearing on each of these issues, the need for additional evidence concerning geotechnical matters and the manner in which their success was to be evaluated.
We note that in the proceedings at first instance there was an issue about the nature and extent of the scope of work required and its value, there being two contracts which we described in the Primary Decision as the "garage contract" and the "renovation contract" and additional work that was performed. In this regard, the Tribunal at first instance found that the builder carried out significantly more work than agreed under the terms of the original lump sum contracts and that the homeowners understood "they had to pay a fair and reasonable amount for the additional work". These conclusions were not challenged in this appeal: Primary Decision at [91].
In the first instance proceedings, evidence was provided by the builder about the extent and value of works performed, including expert evidence from Mr Grieve to which we referred in the Primary Decision. There was cross examination of Mr Grieve about his report. This evidence included variations claimed by the builder.
There was also a report of Mr Capaldi, an expert for the homeowners, on the issue of the cost of particular works and time taken up concerning whether a report of Mr Capaldi (which we referred to in the Primary Decision as the "February Report) should be admitted into evidence. This latter matter being dealt with in the Primary Reasons at [63] and following. The February Report concerned the value of works carried out by the builder "beyond the contract".
As explained at [66]-[70] of the Primary Reasons, we note at this point that this evidence concerning the value of the works was relevant to both the cross application and the defence by way of set off (both of which were withdrawn) and the defence to the claim for restitution.
Our review of the evidence and the transcript suggests the time spent in dealing with the restitution claim, about which the homeowners were unsuccessful was significant. At the same time, some allowance needs to be made in respect of the costs of the homeowners for the withdrawn cross application and application to transfer.
As noted in Bostik, "the question of apportionment is very much a matter of discretion and mathematical precision is illusory".
The homeowners suggested a discount of 20% is appropriate. Having regard to the above, we think a more appropriate discount is 30% to accommodate those parts of the homeowners' claim upon which they were unsuccessful in the proceedings at first instance in consequence of this appeal.
Accordingly, there will be an order that the builder pays the homeowners 70% of the cost of the proceedings at first instance including in relation to the builder's cross application in proceedings HB 21/11458. Those costs will include the costs of dealing with the geotechnical report which the builder did not rely upon. No further or special order in that regard is necessary.

Costs of appeal proceedings

As indicated in the Primary Decision, there were two issues raised by the builders' appeal. One was a challenge to the order for restitution. The other concerned the work order requiring the demolition and reconstruction of the garage. There was no challenge to order 2 made 1 September 2022, by which the Tribunal made a rectification order for various defects concerning the residential premises (as opposed to the garage).
The two issues each involved challenges to the factual analysis carried out by the Tribunal in making its decision under appeal. However, these factual challenges were relatively discrete. There were also discrete legal issues to be resolved in connection with the restitution claim.
The builder was successful in the appeal in relation to one of these issues, restitution. This concerned the challenge to the money order for $65,280.59 which we set aside. As stated above, there was an amount claimed or in dispute in the appeal which was more than $30,000 and r 38 displaces the obligation of the builder to demonstrate there are special circumstances warranting an order for costs: cf s 60 NCAT Act. Consequently, the starting position is that costs should follow the event.
However, consistently with the principles expressed by the Court of Appeal in Bostik set out above, it seems to us that the success of the homeowners in resisting the challenge to the work order made in connection with the garage is a circumstance which makes it appropriate to deprive the builder of costs or a portion of the costs of the appeal referrable to this issue. This is because the issues were discrete and each issue took up a significant part of the appeal, both in terms of submissions made and the time spent hearing the appeal.
Having formed this view, in our opinion an order for costs based on issues should not be made. The reason for this is that we were provided with the evidence and transcript of the original proceedings, it being evident that the parties in the appeal proceeding paid careful attention to ensure that all material from the original proceedings was provided to the Appeal Panel in circumstances where each of the issues required an analysis of the reasons of the Tribunal at first instance, evidence (including expert reports) filed in the proceedings and a consideration of what occurred in the hearing at first instance. Any assessment of costs based on orders for costs of particular issues would be difficult. It would likely lead to further debate between the parties.
Rather, in this case we think the proper exercise of the discretion requires us to determine the relative success of the parties by considering the proceedings as a whole and make a proportional order for costs.
We do not think it appropriate to undertake this assessment based on value. While the order requiring demolition and rebuilding of the garage will likely be a greater cost of the builder then the money award, from which the builder has been relieved, analysing success by dollar value in this case distracts from the nature of an award for costs being to compensate a successful party for costs incurred.
Having regard to the time spent in dealing with each separate issue and having regard to the nature and extent of written submissions and evidence needing to be considered in respect of each issue, it seems to us that the parties have had relatively equal success in relation to the appeal.
Having said that, it was necessary for the builder to bring its appeal in order to correct the error which we have found in relation to the award for restitution. There was no offer of which we are aware that would have rendered the appeal proceedings unnecessary.
In these circumstances, the builder should be entitled to some of its costs in bringing the appeal, allowance being made for the success of the homeowners in resisting the appeal in connection with the garage. This award should be a percentage of the builders' costs of the appeal.
Having regard to these considerations we think that the builder should be entitled to 50% of his costs of the appeal, as agreed or assessed. These costs should exclude the costs of the stay application as these were the homeowners' costs in the cause pursuant to the order made by the Appeal Panel on 28 October 2022.
As to the costs of the costs application, each party should pay their own costs because each has had some success. These costs will be excluded from any assessment.

Orders

The Appeal Panel makes the following orders: 1. The Tribunal dispenses with a hearing of the application for costs pursuant to s 50(2) of the Civil and Administrative Tribunal Act 2013 (NSW). 2. In applications HB 20/12879 and HB 21/11458, the respondent (builder) is to pay the applicants (homeowners) seventy percent (70%) of the applicant's costs of both proceedings, as agreed or assessed on an ordinary basis. 3. In this appeal, the respondents (homeowners) are to pay the appellant (builder) fifty percent (50%) of the appellant's costs of the appeal, as agreed or assessed. Those costs are to exclude the costs of the application for stay dealt with by the Appeal Panel on 28 October 2023. 4. The costs to be agreed or assessed in respect of orders 2 and 3 exclude the costs of the costs application to the Appeal Panel in respect of each proceedings.

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: 05 September 2023

Contract Review Act 1980(NSW)

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