Nu-Stone Building Pty Ltd v McInerney; McInerney v Nu-Stone Building Pty Ltd

The Decision

1. As noted above, both the appeal brought by the builder and the appeal brought by the homeowners were allowed.
2. The basis upon which the builder's appeal was allowed was set out at [49] - [68]. In essence, although we found no error with respect to a question of law, we granted leave to appeal by reason of errors in calculation in the original decision. Although, as we noted at [49], the homeowners did not dispute that there were errors in calculation in the original decision, they did not identify the correct calculation. Nor did the builder. The effect of the adjustment made as a result of the builder's success on its appeal would have been to substitute a liability of the homeowners to the builder of $4,941.78 for the judgment at first instance in favour of the homeowners.
3. The homeowners' appeal was allowed on a basis which, as we stated at [95], was encompassed within one ground of appeal maintained by the homeowners, but was not expressed with clarity. That basis was that the Tribunal's calculation of the cost to complete the works required under the contract between the parties failed to take into account a concession by the builder concerning the extent to which "Stage 4" of the works was not completed by the builder. Again, although we found no error with respect to a question of law, we granted leave to appeal. The adjustment to the amount found to be owing arising from the homeowners' success in their appeal was $27,558.

The submissions

1. The parties were agreed that rr 38 and 38A of the Civil and Administrative Tribunal Rules 2014 (NSW) were applicable both to the proceedings at first instance and to the appeals, so that it is not necessary to find there were special circumstances before making an order for costs.
2. The parties were also agreed that questions of costs could be determined on the basis of the written submissions and without a hearing. Having reviewed the submissions, we are satisfied that the issues for determination can be adequately determined in the absence of the parties by considering the written submissions and we will make an order pursuant to s 50 of the NCAT Act dispensing with a hearing.
3. Both parties' submissions cited authority for the relevant principles applicable to consideration of questions of costs in the Tribunal (including the Appeal Panel) where special circumstances are not required.
4. The builder cited BNT Constructions Pty Ltd v Allen [2017] NSWCATAP 186, where the Appeal Panel stated, at [67]: "67 The parties did not disagree as to the relevant principles to be applied. They include: (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."
5. The homeowners' submissions cited TJM Holdings Pty Ltd v Woori International Pty Ltd (costs) [2024] NSWCATAP 99 at [7] - [9], which states the principles in similar terms.
6. It may also be noted at this point that neither party suggested that the costs of the first appeal hearing should not be dealt with in the same way as the costs of the appeals as a whole.

The Homeowners' submissions in chief

1. The homeowners' submissions in chief addressed only the costs of the appeals.
2. The homeowners sought orders that the builder pay their costs of both appeals.
3. The homeowners submitted that, as they had succeeded in their appeal and had been awarded $22,616.37, they should receive the costs of their appeal.
4. In respect of the builder's appeal the homeowners relied upon the proposition that the homeowners had conceded an error involving the failure to take into account "variation 5" which was the prime cost adjustment relating to windows and doors.
5. The homeowners submitted that: "The adjustment to include the omission of Variation 5 could have been achieved by application of the slip rule. An appeal on the point was not necessary."
6. The homeowners submitted that "the salient findings" in the substantive decision were: "a. The Builder's submissions were in error as to the value of the works completed and was $53,727.87 less than the finding made by the Tribunal which in such circumstances did not align with Mr Nguyen's figures. [Referring to [107] and [108].] b. The proposition that the value of the work caried out towards progress claim 4 was barely more than 50% complete must be erroneous and substantially less than the correct calculation. [Referring to [108].] c. Mr Nguyen's calculation of the costs to complete did not make allowances for incomplete works and was overstated by $21,784.92 and had to be adjusted for that amount which leads to an adjusted trade costs to complete of $367,537 plus margin and GST which gives an adjusted costs of completion of $464,934.43."
7. The homeowners submitted: "13. Whilst the Builder did succeed in its appeal in part, consideration of whether costs ought not follow the "event" as to its appeal is required by reason of the circumstances of the case being the concession that the Windows PC was owed and the glaring errors found by the Appeal Panel in the Builder's logic referred to above." And "15. The Homeowners conceded that an error had occurred in relation to the Window PC claim. The Builder otherwise failed in this Second Appeal as to any substantial sum being awarded to it. That is a special circumstance that warrants an order that the costs of the Homeowners in relation to the Builder's Appeal ought to be paid by the Builder."

Builder's submissions in chief

1. The builder sought orders: "(a) That there be no Order as to costs as between the parties with respect to the proceedings heard before Senior Member Thode, or alternatively that the Builder pays 25% of the Owners' costs of those proceedings. (b) That the Owners pay the Builder's costs on the ordinary basis of all proceedings that were heard by the Appeal Panel in 2022 and 2024."
2. In respect of the costs of the appeals, the builder submitted that: "There can be little doubt that the Builder obtained, on any view, substantial success overall which would warrant an order for costs in its favour on an 'event basis'."
3. The builder noted that the outcome of the appeals was to reduce the amount payable by the builder to the homeowners by nearly $92,000.
4. The builder submitted that: "There is no suggestion of disentitling conduct or any other basis that would ordinarily displace the expectation that costs should follow the event."
5. In respect of the costs of the proceedings at first instance, the builder submitted that "[b]oth parties brought claims and both parties obtained some measure of success with respect to those claims".
6. The builder submitted that "there is no dispute that the proceedings involved separable issues" and that "the Owners lost on various issues that took up large amounts of time at hearing and in submissions".
7. The builder identified that the homeowners had had success on the issues of termination [in that the Tribunal found that the builder repudiated the contract, and the homeowners accepted the repudiation] and "Substantial completion of PC4 & interest" [in that the Tribunal found the works the subject of progress payment 4 were not substantially complete and the builder was not entitled to interest on that amount]. The builder submitted that the homeowners had had partial success in relation to their claim of defective work and "no success" in relation to "overpayment".
8. It is not clear what the builder submits was involved in the issue identified as "overpayment" or why the builder submits that the homeowners had no success on that issue. The builder's submissions refer to paragraph [97] of the first instance decision, where the Tribunal addressed a claim by the builder to an amount of $119,032.25 said to be an underpayment by the homeowners. The Tribunal, at [99] - [100], allowed the builder $11,843.97 in respect of that claim. We note that on appeal neither party sought to suggest that that calculation was supportable. It formed no part of the ultimate calculation in the substantive appeal decision of the amount payable by the builder.
9. Nevertheless, the builder submitted that: "Both parties made detailed written submissions on the issue of overpayment, which became a dominant and separable issue."
10. The builder also submitted that the evidence provided by the experts took up the first day of the hearing (which took two days with written submissions filed subsequently).
11. The builder's submissions in chief concluded: "5.1 The Builder pursued its claim in a just, quick and efficient manner and should be properly compensated for the substantive success it obtained in the proceedings that were heard before the Appeal Panel. 5.2. With respect to the decision at first instance, whilst there was no clear winner the Appeal Panel should take into account that both parties obtained some measure of success and that the Owners were completely unsuccessful against the Builder on the central issue of overpayment, which took up a significant time at hearing and in submissions."

The homeowners' submissions in response to the builder's submissions

1. In response to the builder's submissions concerning the costs at first instance, the homeowners submitted that the costs order made by the Tribunal should not be disturbed. The homeowners noted that the builder had not opposed a costs order being made against it after the delivery of the original decision. The homeowners submitted that the outcome of the proceedings was clearly in favour of the homeowners and that position had not been changed by the decision on the appeal.
2. The homeowners further submitted that the builder had maintained a "sham contract" case which had been abandoned on the first day of the hearing but not before significant costs had been incurred. The homeowners also submitted that their success in establishing repudiation by the builder had followed inevitably once the builder had admitted to "fraudulently changing the Third-Party invoices issued to the Homeowners in relation to the variation works completed by it."
3. The homeowners submitted that, even "taking a pragmatic approach on an issue-by-issue basis", they would be awarded the whole of their costs.
4. The homeowners submitted: "11. The outcome in relation to defects was overwhelmingly successful in favour of the Homeowners (six out of seven claimed were found in their favour) as was the costs to complete the works (albeit on the wrong basis as now determined in this Appeal). It is submitted that in the circumstances that the Homeowners achieved overwhelming success in the Tribunal and in this Appeal. 12. The Builder failed in its variation claim, noting that it only succeeded on appeal in relation to the conceded Windows PC claim. 13. It is not a case that the losing party (i.e. the Builder) succeeded on significant issues. It failed on every significant issue that it pressed. In that respect, the success of the Builder was limited particularly having regard to the finding that the PC 4 works had not been completed. It failed in its interest claim. It failed in its loss of profit claim."
5. In respect of the costs of the appeals, the homeowners submitted that "the issues that were the subject of the Appeals were determined largely in their favour."
6. The homeowners submitted that: "It is not a case of the Builder winning the Appeals. The Appeal Panel has recognised that there were errors made below, largely by reason of incorrect calculations provided by the Builder and adopted in the Tribunal Proceedings."
7. The homeowners also submitted that: "The case propounded by the Builder failed on appeal notwithstanding that the result was a decrease in the award to the Homeowners."

Builder's submissions in reply

1. In reply to the homeowners' submissions in chief the builder submitted: 1. A failure to take into account variations could not be corrected by the application of the slip rule; 2. The issue of variations was not the substantive aspect of the builder's appeal; 3. The substantive aspects of the builder's appeal were "completion costs and overpayment" on which the builder "obtained success"; 4. The builder's success on the appeals was "significant"; 5. There is no disentitling conduct on the builder's behalf; 6. The homeowners' suggestion that the builder failed in the appeal proceedings "should be rejected in light of the overall outcome"; and 7. A reduction of the judgment from $114,557.17 to $22,616.37 cannot be viewed as a successful outcome for the homeowners "particularly in circumstances where the Owners cross-appealed and sought damages exceeding the amount … awarded at first instance".

Homeowners' submissions in reply to the builder's submissions in reply

1. In reply to the builder's submissions in reply, the homeowners submitted that there "is no compelling reason" advanced by the builder to warrant the exercise of the discretion as to costs other than in the manner sought by the homeowners.
2. The homeowners submitted: "3. The 'event' is the success of the Homeowners in their recovery of a sum towards their completion costs. It is wrong to suggest that the variation case pressed by the Builder was a substantive matter. It failed in its variation claims with the exception of the window adjustment which was conceded both in the Tribunal and on appeal."

Consideration

1. It is appropriate to commence consideration of the issues by addressing a number of submissions made by the parties which appear to be founded upon a misunderstanding of the substantive decision.
2. Contrary to the homeowners' submissions in chief, the value of "variation 5" was incorporated into the Tribunal's calculation at first instance of the amount owing to the homeowners. See the Tribunal's decision at [84] and the substantive appeal decision at [21].
3. The errors in the calculation of the amount owing identified by the Appeal Panel in the substantive decision were not conceded by the homeowners.
4. The first two of the matters identified by the homeowners as "salient findings" (said to arise from paragraphs [107] and [108] of the substantive decision) were not essential to the substantive decision. Only the third of those matters directly affected the outcome of the appeals, but only in respect of what we identified as the homeowners' second ground of appeal. None of the three matters had any significance in relation to the builder's appeal, which was dealt with in the substantive decision at [49] - [70].
5. Paragraphs [13] and [15] of the homeowners' submissions in chief (set out above at [25]) fail to acknowledge that the builder obtained a reduction in its liability to the homeowners of nearly $92,000. As noted above, the builder's entitlement to payment in respect of the prime cost adjustment for windows and doors formed no part of that adjustment.
6. The builder's submissions in chief in relation to the costs of the first instance decision fail to acknowledge that, although the owners failed to recover the amount they sought, they nevertheless obtained an order for payment in their favour and succeeded in establishing that they had validly terminated the contract and were entitled to compensation for breach of contract.
7. The builder succeeded only in: 1. Reducing the value of the homeowners' claim in respect of defects; and 2. Recovering payment for variation 5.
8. The issue of overpayment, on which the builder claims to have succeeded, appears to have been a false issue. In the absence of a clear articulation from the parties of the scope of the contest, and reference to the relevant parts of the transcript and submissions, the Appeal Panel is not in a position to find that the "overpayment issue" occupied significant time at the hearing and in submissions, or to determine which of the parties was responsible for the pursuit of the false issue.
9. Contrary to the homeowners' submissions in response to the builder's submissions, the errors made by the Tribunal at first instance cannot be attributed to incorrect calculations provided by the builder. To the extent that the source of error can be identified, it lies in the erroneous approach to the calculation of the cost to complete, adopted by the homeowners.
10. As we found in the substantive decision, once it was determined that the builder had repudiated the contract, the value of the works completed ceased to be relevant to the calculation of the amount owing between the parties (save in the limited sense in which Mr Nguyen's calculations of the value of PC4 were relevant to the determination of the cost to complete, as outlined in the substantive decision at [131]).
11. Also contrary to the homeowners' submissions in response to the builder's submissions, the case propounded by the builder did not fail on appeal. The builder's submissions adopted the correct approach to the calculation of the measure of compensation payable to the homeowners. Essentially, it was only arithmetical errors that led the builder to propound an incorrect outcome.
12. To the extent that the homeowners' submissions in reply to the builder's submissions in reply suggest that the "event" on the appeals was "the success of the homeowners in their recovery of a sum towards their completion costs", that is clearly not correct.
13. The "event" for the purposes of determining the allocation of the costs of an appeal has always been regarded as the effect of the appeal in altering the decision at first instance.
14. In this case, the event on the builder's appeal was an adjustment of the balance payable in the builder's favour by $119,499.95. The event on the homeowners' appeal was an adjustment of $27,558.15 in favour of the homeowners.
15. The event, overall, of the appeals was a reduction in the judgment by $91,940.80.
16. We turn to address the questions what orders should be made: 1. In respect of the costs of the proceedings at first instance; and 2. In respect of the costs of the appeals.

First instance proceedings

1. As we noted in the substantive decision, at [138], the outcome of the proceedings remains a judgment in favour of the homeowners and, presumptively, there is no reason to interfere with the costs order made by the Tribunal that the builder pay the homeowners' costs.
2. One circumstance in which it would be appropriate to change that result would be if the builder had made a Calderbank offer to pay the homeowners more than the amount ultimately awarded. The builder has not tendered evidence of any such offer.
3. The issues arising in the proceedings at first instance were such that it is impossible to distinguish a distinct outcome for either the builder's claim or the homeowners' cross-claim. The builder's claim was dismissed but not because the builder failed to establish any entitlement to payment. Rather, the builder's entitlement was brought to account in assessing the damages payable to the homeowners for the builder's breach of contract.
4. Notwithstanding that it did not make such a submission to the member at first instance, the builder submits that the Appeal Panel should have regard to the parties' respective success on what it asserts were separable issues.
5. The principles governing the allocation of costs by reference to separable issues were conveniently canvassed in McIntyre v DRW Constructions Pty Ltd; DRW Constructions Pty Ltd v McIntyre [2018] NSWCATCD 58 at [33] - [38]: "33 It is not in dispute that the Tribunal has the power to apportion costs. The general approach is to order costs 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 succeeded. However, a different costs order can 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]; 34 A court will generally only apportion costs where the successful party was unsuccessful in respect of an issue that was clearly dominant or separable: Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373 at [6]; Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38]. 35 In Tomanovic v Global Mortgage Equity 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". 36 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]. 37 Where costs are apportioned, the nature and extent of the apportionment is discretionary. Mathematical precision is illusory: 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. 38 Finally, where each party has had substantial success, a court or tribunal may make no order as to costs: Hogan v Trustee of the Roman Catholic Church (No 2) [2006] NSWSC 74 at [40]."
6. Notwithstanding the builder's confident assertion that "there is no dispute that the proceedings involved separable issues", we do not consider that it can be said that there was any issue, on which the homeowners failed, which was "clearly dominant or separable".
7. As we have outlined above, the issue upon which the builder founded its argument, "the central issue of overpayment", would appear to be a false issue, which did not have any significance to the ultimate resolution of the case, and in respect of which the Appeal Panel is not in a position to identify either party as having had success or failure, or as bearing responsibility for the issue being raised.
8. The builder does not suggest, and we do not find, that there was any disentitling conduct on the part of the homeowners which would warrant their being deprived of their costs.
9. The homeowners succeeded in obtaining a judgment in their favour. Regardless that it is substantially less than the amount claimed, it is not a nominal sum and is sufficient to justify an order that the builder pay the homeowners' costs of the proceedings at first instance.
10. Because the effect of our orders made in the substantive decision is that, upon the builder filing submissions seeking a different order concerning the costs at first instance, the order directing the builder to pay the homeowners' costs ceased to have effect, it is necessary to make a fresh order to the same effect.

Costs of the Appeals

1. In contrast to the proceedings at first instance, it is possible to distinguish the outcomes of the two appeals brought by the parties. Each party was successful in the appeal which they brought against the decision at first instance.
2. It is appropriate to recognise the homeowners' success in increasing the calculated cost to complete the works by reference to the state of completion of the work the subject of PC4. At the same time, it is also appropriate to recognise that the builder had substantial success in the appeals overall.
3. We do not consider that it would be appropriate to make separate orders in relation to the two appeals. It would be an impossible task to try to assess the costs attributable to each appeal. This is particularly the case where, as we have indicated in the substantive decision, much of the submissions were directed to issues which did not ultimately have any impact on the final outcome.
4. We consider that the appropriate order, reflecting the builder's overall success in reducing the judgment and the homeowners' success on one ground of appeal, is to order that the homeowners pay the builder 75% of its costs of the appeals, including the costs incurred in relation to the hearing on 24 May 2022.

ORDERS

1. Our orders are: 1. Pursuant to s 50 of the Civil and Administrative Tribunal Act 2013 a hearing of the parties' respective costs applications is dispensed with. 2. The builder is to pay the homeowners' costs of proceedings HB 20/36393 and HB 20/15757 as agreed or assessed. 3. The homeowners are to pay 75% of the builder's costs of the appeals (2022/00037784 and 2022/00053249) as agreed or assessed.

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: 09 December 2024