N & T Buildings Pty Ltd v Grozdanov; Grozdanov v N & T Buildings Pty Ltd

NCAT Consumer and Commercial|2016-06-02|Before: Mr P

Introduction

Proceedings HB 14/25130 (the builder's claim) and HB 14/29694 (the owners' claim) were originally heard by a differently constituted Tribunal on 10 November 2014. The owners appealed the Tribunal's decision to dismiss their application and to make an order in favour of the builder on the builder's application. The Appeal Panel set aside the Tribunal's decision and remitted the proceedings to the Tribunal for rehearing.
Both applications were listed for hearing on 17 and 18 September 2015.
At the rehearing, the owners' claim was settled in part in respect of four smaller value items, but otherwise remained fully contested. The builder's claim was settled between the parties in the sum of $15,000.
Final orders were made in both proceedings and reasons for decision were published on 20 April 2016. Relevantly, in the owners' claim the builder was ordered to pay the owners $165,114 and the builder's claim was dismissed because the agreed settlement of the builders' claim had been taken into account in the orders made in favour of the owners.
The parties were given an opportunity to apply for and make submissions in respect of costs. The parties were put on notice that subject to any submissions they made, the question of costs was likely to be determined without a hearing.

Costs applications and submissions

On 26 April 2016, the builder made an application for costs in the builder's proceedings, on the basis that it was only on the day of the hearing that the owners consented to the builder's claim in the sum of $15,000.
On 2 May 2016, the owners made an application for costs, apparently seeking costs in both proceedings. However, the submission attached to the application only addresses the owners' proceedings. In summary, the owners submit that there are special circumstances warranting an order for costs in favour of the owners, namely that:

The builder was responsible for prolonging unreasonably the time taken to complete the proceedings.
The nature and complexity of the proceedings.
The builder's rejection of two Calderbank offers, the first made on or about 7 November 2014 and the second on or about 9 September 2015.

On 18 May 2016, the builder filed a submission responding to the owners' submission on costs. In summary, the builder opposes an order for costs because:

The proceedings were by way of a claim and a cross-claim.
Both claims were supported by expert evidence.
There was a genuine dispute between the parties as to the liability for defects alleged by the owners.
The builder did not take a frivolous or vexatious approach to the matter but had detailed expert evidence to support its position.
The proper order should be that each party is to pay its own costs.

Neither party sought a hearing on costs.
In making a decision in relation to the costs applications, I have considered the submissions provided by both parties.

Jurisdiction

Section 60(1) of the Civil and Administrative Tribunal Act 2013 (the NCAT Act) requires parties to pay their own costs unless the Tribunal is satisfied that special circumstances warrant an award of costs: s 60(2) of the NCAT Act.
However, s 60 is subject to cl 38 of the Civil and Administrative Tribunal Rules 2014 (the Rules). Clause 38 provides that despite s 60, in matters in the Tribunal's Consumer and Commercial Division the Tribunal may make an order for costs even in the absence of special circumstances where the amount claimed or in dispute in the proceedings exceeds $30,000.
This matter was determined in the Consumer and Commercial Division and the amount claimed by the owners exceeded $30,000, as did the amount originally claimed by the builder. Clause 38 therefore applies and the Tribunal has a discretion as to whether to make an order for costs. Special circumstances do not need to be established.
Clause 38 does not specify the factors the Tribunal must take into account in exercising the discretion. In these circumstances, I am satisfied that the appropriate starting point 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.
The situation that applies in proceedings that have been determined without a hearing on the merits is set out below.

Issues

The issues to be determined are: 1. Should an order be made dispensing with a hearing, pursuant to s 50(1)(c) of the NCAT Act? 2. Should an order for costs be made in the builder's favour on the builder's claim? 3. Should an order for costs be made in the owners' favour on the owners' claim? 4. If so, on what basis should the builder be ordered to pay the owners' costs?

Should an order be made dispensing with a hearing, pursuant to s 50(1)(c) of the NCAT Act?

As noted above, the parties were given an opportunity to make an application for costs and were ordered to file and serve submissions in relation to any such application. The parties did not, in their submissions, request that a hearing be listed to deal with costs.
Section 50 of the NCAT Act relevantly provides: 50 When hearings are required (1) A hearing is required for proceedings in the Tribunal except: … (c) if the Tribunal makes an order under this section dispensing with a hearing, or … (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. …
In this case, the parties have had an opportunity to make submissions requesting a hearing on costs. They have not done so.
I am satisfied that the issue of costs can be adequately determined in the absence of the parties by considering the parties' written submissions. In my view, the parties would be put to unnecessary expense if a hearing on costs were held.
The order under s 50(1)(c) of the NCAT Act has accordingly been made.

Should an order for costs be made in the builder's favour on the builder's claim?

As noted above, the builder's claim was settled at the hearing without evidence being taken. Accordingly, the builder's claim was not heard and determined on the merits.
Where proceedings have been decided without a hearing on the merits, the factor that usually determines whether a costs order should be made - that is, the success of one of the parties - is necessarily absent.
In Re Minister for Immigration & Ethnic Affairs (Cth); Ex Parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622; (1997) 143 ALR 1; (1997) 71 ALJR 533 (28 February 1997) (Lai Qin), McHugh J described circumstances in which the discretion to make a costs order may be exercised in the absence of a hearing on the merits. One circumstance described by McHugh J is where one of the parties has acted so unreasonably that the other party should be awarded costs [at 624]. The other circumstance described is where a judge feels confident that although both parties have acted reasonably, "one party was almost certain to have succeeded if the matter had been fully tried" [at 625].
The issue of costs in cases where the substantive issue in dispute has been resolved without a hearing on the merits was also considered by Burchett J in 55 In ONE.TEL Ltd v Deputy Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548, (ONE.TEL Ltd) who stated, at 553 [6]: :"…it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs. …"
In this case, I am not satisfied the builder acted unreasonably in commencing the proceedings or that the owners acted unreasonably in defending those proceedings. Nor am I satisfied that it can be said that either the builder or the owners was almost certain to have succeeded if the builder's claim had been fully tried. Instead, the settlement of the builder's claim has all the hallmarks of a compromise appropriately reached by the parties in order to limit the matters in dispute and save hearing time and costs.
In these circumstances, I conclude that the appropriate order on the builder's application is that each party pay its own costs of the proceedings.

Should an order for costs be made in the owners' favour on the owners' claim?

As noted above, four items constituting the owners' claim were settled during the hearing. These items were the four smallest value items, ranging between $200 and $2,250. All of the remaining items were fully contested and the owners were successful in relation to the balance of their claim. This was because I preferred the owners' expert evidence and quantum evidence to that of the builder.
I accept that there was a genuine contest between the parties, based on the expert evidence that each of them had obtained. However, it can reasonably be said that the owners were successful in prosecuting their claim and that the builder was unsuccessful in defending it.
The builder has not suggested that there was anything about the owners' conduct of their proceedings that would disentitle the owners to an order for costs and there is nothing in the material before me that leads me to such a conclusion.
I am satisfied that the owners are entitled to an order that the builder pay their costs because they were the successful party in the proceedings.

On what basis should the builder be ordered to pay the owners' costs?

The Tribunal has power to award costs on an indemnity basis: s 60(4) of the Act. However, the Tribunal must exercise caution when making orders such orders: Leichhardt Municipal Council v Green [2004] NSWCA 341; Ng v Chong [2005] NSWSC 385 at [13]. There is no fixed rule concerning when the discretion to order costs on an indemnity basis might be exercised: Harrison v Schipp [2001] NSWCA 13 at [139]. However, it requires a "sufficient or unusual feature" (Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233-234), or some "relevant delinquency": Oshlack v Richmond River Council (1998) 193 CLR 72; that is delinquency bearing a relevant relation to the conduct of the case.
The decision of Colgate Palmolive Co and Another v Cussons Pty Limited 118 ALR 248 is authority for the proposition that costs on an indemnity basis may be awarded because of 'an imprudent refusal of an offer of compromise' per Sheppard J. at page 257.
In the Court of Appeal decision 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 and a claim for costs on an indemnity basis. They are whether there was a genuine offer of compromise and whether it was unreasonable for the offeree not to accept it.
The determination of whether 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 applicant's claim should be considered as at the time of the offer: see Gretton v Commonwealth of Australia [2007] NSWSC 149.
The owners base their claim for indemnity costs on the builder's refusal of two offers, said to be Calderbank offers. They do not assert any relevant delinquency by the builder in the context of their claim for indemnity costs. It is open to the Tribunal to consider the effect of a Calderbank offer in accordance with common law principles in determining the exercise of its discretion.
According to the owners' submission, on or about 7 November 2014, the owners made an offer to the builder to settle both proceedings on the following terms: The Builder pay the Owners $150,000 and legal costs as agreed or assessed.
The owners state that the offer was open from 7 November 2014 until the commencement of the first hearing on 10 November 2014.
According to the owners' submission, the second Calderbank offer was made to the builder on or about 9 September 2015 and was in the following terms: The Builder pay the Owners $100,000 and legal costs as agreed or assessed.
The owners state that the offer was open from 9 September 2015 to the commencement of the re-hearing of the matter on 17 September 2015.
The documents setting out these offers are not attached to the owners' submission. Although the builder does not dispute the offers having been made, the fact that copies of the actual offers have not been provided means that I cannot properly assess the reasonableness or otherwise of the builder's failure to accept the offers.
However, even accepting that the offers referred to in the owners' submission were made in the proper form and that they represented genuine offers of compromise, I am not satisfied that it was unreasonable for the builder to reject the offers.
There was a genuine contest between the expert witnesses in the owners' application. While I ultimately preferred the evidence given by the owners' expert witness and a third party builder engaged to provide quantum evidence, on the material before me it was not unreasonable for the builder to take the view that it had a strong case in defence to the owners' claim. Further, there was a genuine question about the independence of the owners' quantum evidence that it was not unreasonable for the builder to test.
In hindsight, the builder should have accepted one or other of the owners' offers, as the outcome for the builder was an order to pay more than either of the offers, and significantly more than the second offer. However, as noted above, the test of whether it was unreasonable to reject a settlement offer is not to be assessed in hindsight. Given the expert evidence obtained by the builder, I am satisfied that it was entitled to maintain the position that the owners would not achieve the outcome they sought at the hearing.
Given that I have found that it was not unreasonable for the builder to reject the owners' offers of 7 November 2014 and 9 September 2015, the appropriate order on the owners' costs application is an order in favour of the owners for their costs to be paid on a party/party basis, either as agreed or as assessed in accordance with the Legal Profession Uniform Law Application Act 2014.

Orders

I make the following orders: 1. A hearing on costs is dispensed with pursuant to s 50(1)(c) of the Civil and Administrative Tribunal Act 2013. 2. In HB 14/25130, each party is to pay their own costs. 3. In HB 14/29694, N & T Buildings Pty Ltd is to pay Nick Grozdanov's and Olga Grozdanov's costs of and incidental to the proceedings on a party/party basis as agreed or as assessed in accordance with the Legal Profession Uniform Law Application Act 2014, such costs to be paid within 14 days of agreement or assessment. K Rosser Senior Member Civil and Administrative Tribunal of New South Wales 2 June 2016 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: 22 July 2016

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