Owners Corporation SP 66595 v B S & J H Bailey Pty Ltd

NCAT Appeal Panel|2015-07-27

AP 15/26940 Solicitor: G Northcott Solicitors: Northcott Lawyers File Number(s): AP 15/28665 and AP 15/26940 Decision under appeal Court or tribunal: Civil and Administrative Tribunal of New South Wales Jurisdiction: Consumer and Commercial Division Citation: Not applicable Date of Decision: 19 March 2015 Before: N Correy File Number(s): HB 07/58200 and HB 08/44917

REASONS FOR DECISION

These two appeals arise out of a decision made in the Consumer and Commercial Division of the Tribunal on 19 March 2015. In that decision the Tribunal made the following orders: 1. in matter HB 08/44917 the builder to pay to the owners the sum of $109,340.00 within 21 days of the date of this order. 2. in matter HB 07/58200 the insurer to pay to the owners the sum of $109,340.00 or any part there of as is outstanding within 28 days of the date of this order in the event of the owners not receiving full payment of this amount from the builder within the stipulated timeframe in accordance with the preceding order 1. 3. in matter number HB 07/58200 that the insurer pay the owner's costs of the proceedings as assessed or agreed. 4. in matter number HB 08/44917 that the builder pay 65% of the owner's costs of the proceedings as assessed or agreed, except for those costs, incurred by the owners, of and incidental to the preliminary application by the builder in relation to the limitation point, which costs as assessed or agreed, are to be paid as to 100%.

Background facts taken from the Tribunal decisions

The relevant background facts as found by the Tribunal are set out in the decision (the costs decision) which is the subject of this appeal as well as an earlier decision delivered on 19 September 2014 (the liability decision). The following represents a summary of the facts as found by the Tribunal and has been taken from those two decisions.
The builder was engaged in the construction of the premises between 2000 and 2001 pursuant to a contract with a developer. Subsequently an owner's corporation (the owners) was established and became the owner of the property. A dispute emerged which resulted in the owners commencing proceedings in the Tribunal in late 2007 against the builder and the insurer. The latter proceedings were the subject of a determination concerning preliminary questions and a decision on those questions was delivered in March 2009. In this appeal the builder relies in part on an offer apparently made in 2007.
In 2011 the two experts (Mr Allsopp for the owners and Mr Baxendale for the builder) participated in a conclave meeting (paragraph 41 of the decision of 19 September 2015).
The Tribunal then heard the owner's application in May 2012 and delivered the liability decision two years later. That decision was limited to making findings on liability but quantum was not determined. It was delayed because at the May 2012 hearing the builder had raised for the first time a "limitation point" which the Tribunal heard separately and delivered a decision on in January 2013. The limitation point necessarily had to be determined before the Tribunal could determine the liability decision.
In paragraph 101 of the decision of the liability decision, the Tribunal referred to an offer by the builder in May 2012 to carry out the work in respect of "general defects as well as the structural stabilisation work, provided that a liability was found against it for such work." The Tribunal described this offer as doing "nothing other than confirm the entrenched position taken by the builder from the outset." The Tribunal went on to say that the builder's submission to the Tribunal in effect is that it should make a work order against it in respect of such work for which it is found to have a liability. The Tribunal found that "it would be unreasonable for the Tribunal to make a work order that gave the opportunity to carry out the work including the structural stabilisation for which in respect to the latter at least until this decision it had refused to acknowledge any responsibility." [101]
In paragraph 114 of the liability decision the Tribunal stated that liability has "been admitted in respect of the general defects which are to a large degree of a cosmetic nature. This determination only needs to address the extent to which the premises requires structural stabilisation following the foundation movement that lead to the cracking and the like within the relevant units. The question is therefore how many if any piers are required to underpin and stabilise it."
In paragraph 123 of the liability decision Tribunal found that "the three piers conceded by Mr Baxendale at the conclave remains appropriate as the prudent course for rectification and not the more extensive underpinning of areas where there has only ever been superficial cracking evident."
The liability decision then concluded by stating that the matter should be listed for directions to set a timetable to have the parties produce an agreed costing for such work to be performed by an independent contractor or in the absence of agreement to make orders appropriate to enable the Tribunal to determine the quantum preferably on the papers.
From the Tribunal's costs decision it is apparent that the parties agreed, following the liability decision, to appoint a single quantity surveyor to provide a joint report on the cost of carrying out the rectification work necessitated by the findings in the liability. The report is dated 15 January 2015 and was obtained by the parties from Tony Makin Associates. The Makin report concluded that the costs of the rectification works necessitated by the liability findings to be an amount of $109,340.00. In paragraph 10 of the costs decision of 19 March 2015 the Tribunal found that the owners have succeeded in their application against the builder and the owners submitted that there were entitled to an order against the builder and an insurer on the basis of their success. The Tribunal Member stated that he accepted the owner's submission and that the owners were entitled to an order against both the builder and the insurer.
In paragraph 13 of the costs decision the Tribunal records that the builder had contended from the outset that no piering to stabilise the foundation was required but at the hearing in 2012 the builder conditionally conceded the need for three piers to stabilise lots 1 and 2.
In paragraph 20 of the costs decision the Tribunal found that the owners have succeeded against the insurer on the general issue of stabilisation of the structure notwithstanding that it was not to the full extent of the claim subsequently made in respect of the number of piers required. In the course of deciding whether the owners have succeeded against the insurer on the issues of indemnity the Tribunal decided that the owners had succeeded "100%" [22]. The Tribunal found that sound structural stabilisation had been held to be required as distinct from none at all. The decision went on to say that the builders position remained in the first instance that there was no liability for any structural stabilisation but in the alternative if it were required then it should only be liable to rectify the addition of three piers as opposed to twenty two [27].
The Tribunal then went on to record that the builder asserted it was successful having regard to the findings that only three piers were required and that it should at least be entitled to its costs from the time that it made such an offer consistent with the placement of three piers in 2011 [28]. Then in paragraph 34 the Tribunal said: In the circumstances having regard to all factors relevant to the outcome (including the extent of the required piering and the fact that the determination of that issue was consistent with the builder's contention and offer rather than the owners'), I determine in the exercise of the discretion afforded to me, that the fair and reasonable costs that the successful owners should be awarded is sixty five percent of their costs in pursuing this application against the builder. The latter however should not apply to such costs as were specific to limitation point raised by the builder on day three of the hearing and which was subsequently determined unsuccessful. None of the parties complied with directions for filing submissions earlier in relation to the costs of that limitation issue and it has not been canvassed in these submissions now filed. In the absence of such submissions I determine that such discrete costs relating to the limitation point should be paid by the builder on a party and party basis to the owners without reduction, in addition to sixty five percent of the general costs of the proceedings against the builder.

The Builder's appeal

The builder lists the following seven grounds of appeal: 1. Wrongful exercise of discretion to apportion costs payable by the Appellant after the findings in Paragraphs 26 and 34 of the decision. 2. Failure to apply correct principles of law in determining the Appellant Builder's liability to pay costs. 3. Failing to take into considerations which entitled the Appellant Builder to its costs when holding that the Appellant adopted liability for piering as an alternative ground in 2011 (Paragraph 27 and 28 of Decision). 4. Determining the costs liability of the Appellant on unreasonable grounds given all relevant factors and Expert Conclave in August 2011. 5. Failure to consider the offers of settlement which had been made by the Builder which, if accepted, would have obviated the need for proceedings at all beyond when the offers were made. 6. Failure properly to consider which party had "success" bearing in mind what was sought by each party. 7. Failure properly to apply the authorities cited by the decision maker.
In the builder's submissions the builder elaborates on the grounds. The builder states that "in large part, the builder's complaint is grounded in the failure of the Tribunal to address arguments in the builder's submissions as to costs." The submissions state that there was a constructive failure to exercise jurisdiction by the failure to take into account relevant matters. The builder goes on to state that a failure to respond to a substantial, clearly articulated argument relying upon established facts was at least to fail to accord… natural justice (Dranichnikov v. Minister for Immigration and Multicultural Affairs [2003] HCA 26: (2003) 197 ALR 389 at [24]. Furthermore the builder, relied upon the decision in Minister for Immigration and Multicultural Affairs v. Yusuf [2001] HCA 30: 206 CLR 323 (at 351) where the Court said that where a decision maker identifies a wrong issue, asks a wrong question, ignores relevant material or relies upon irrelevant material in a way that affects the exercise of power is to make an error of law.
Accordingly, the builder's appeal is based upon an error of law and the other grounds of appeal identified in s 80 of the Civil and Administrative Tribunal Act 2013 (the Act) requiring leave are not applicable.
The builder submits that it conceded liability for the non-structural defects claimed by the owners. As to the structural defects, the builder asserts that the owners claimed that 22 piers were required whereas the builder's expert conceded that only three were required. Ultimately the Tribunal found that only three were required and that therefore the builder had substantially succeeded on that part of the claim.
The builder then submits that following the liability decision directing the parties to produce an agreed costing for the work for which the builder was found to be liable, the parties produced the report dated 15 January 2015 (the Makin report). In that report the cost of underpinning the three piers was $10,935.78 plus GST. The builder submits that given the builders concession as to "the other works in the Scott Schedule" (presumably the non-structural works) the proceedings were run effectively for the sum of $12,029.35 (the cost of the three piers inclusive of GST).
The builder goes on to submit that the builder had "beat offers which it had made in attempts to resolve" the dispute and the builder therefore submits that the costs consequences should be that : 1. the builder should pay the owner's cost in respect of the "cosmetic these affects (sic) up to 3 September 2007, when it made an offer to repair all of those works"; 2. that the owner should pay the builder's costs in respect of cosmetic defects from 3 September 2007 on an indemnity basis, and 3. that the owner pay the builder's costs in respect of the claim for structural defects, alternatively that the owners pay 73% of the builder's costs in respect of the claim for structural defects.
The builder refers to paragraph 26 to 34 of the costs decision in which the finding is that the builder had at all times admitted responsibility for the general defects but not for any structural stabilisation until the August 2011 conclave of experts when a concession was made by the builder. The builder says that the costs order does not reflect these findings.
The builder submits that the Tribunal: 1. proceeded from the bases that, firstly, the owners were the successful party and secondly, that they should have their costs unless there was disentitling conduct on their part (appeal grounds 1-4); 2. did not find that the claim made by the owner that the alleged breach of the footing specification was a severable issue, when it was the first of three issues in the proceedings (appeal grounds 1-4); 3. did not find that the extent of the piering was a severable issue, when in fact it was the second of three severable issues and was the main issue in the hearing (appeal grounds 1-4); 4. did not consider apportionment of costs adequately given the degree of success which the builder had in that the Tribunal did not provide any reasoning as to how the Tribunal arrived at a figure of 65% as opposed to some other proportion (appeal grounds - 1,2); 5. did not properly take into account any of the written offers made by letter by the builder or the conclave concession (appeal grounds 1,2); and 6. did not advert to the disentitling conduct of the way that the owner ran their case (appeal grounds 1, 2).
The builder relies upon an offer made on 3 September 2007 contained in correspondence in Exhibit BE12 tendered to the Tribunal below.
The builder acknowledges the finding contained in paragraph 16 of the liability decision that the owners had adopted the position that unless the builder was prepared to carry out all of the rectification work including the stabilisation works it was not prepared to permit the builder to come back to do any work at all. The builder further acknowledges that the Tribunal, in a decision delivered on 9 March 2009 found that the owner's refusal was not unreasonable.
The builder then refers to an offer made on 9 May 2009 by which the builder offered to undertake all remedial work with the exception of the stabilisation works.
The builder submits that the owner's expert, Mr Allsopp had maintained that footings needed to be underpinned in twenty two locations. The builder further submits that its expert, Mr Baxendale provided expert opinions that no underpinning was required. However, the builder submits that at a conclave of experts which occurred on 10 August 2011 Mr Baxendale conceded the necessity for three piers. The builder submits that the conclave report acknowledges the respective opinions of the experts namely that Mr Allsopp held the opinion that twenty two piers were required and that Mr Baxendale held the opinion that only three piers were required. We note that the costs decision records that the "builder had offered structural stabilisation of three piers in an effort to compromise the dispute for the purpose of settlement which offer was rejected by the owners." [26] The decision further records that the builder conducted its defence on the basis that no structural stabilisation was required and only conditionally offered on the final day of hearing to carry out such stabilisation work in requesting a work order if the Tribunal found it was responsible for it [26].
The builder refers to a statement made by counsel for the owner at the commencement of the hearing of the case in 7 May 2012 that it had then agreed between the parties that three piers were required at least and the only question was whether twenty two piers was excessive. At the hearing, counsel for the builder said he would need to explore with Mr Baxendale the basis for his apparent concession; that is whether he conceded it was necessary as a matter of proper building practice or that he conceded liability in order to resolve the dispute.
The builder submits that when the hearing which commenced on 7 May 2012 started, the position was that the parties had agreed on all of the non-structural issues and that the only issue between them was the extent of the underpinning. The builder submits that it's submissions in reply following the hearing identified the issues before the hearing namely whether three piers or twenty two piers or any piers at all should be installed.
The builder submits that given the above circumstances the finding that the owner was the successful party is incorrect.
Next, the builder takes issue with the decision contained in paragraph 30 of the costs decision that the Tribunal was not satisfied that "the extent of piering was a severable issue in the required sense even though the builder has clearly been successful on it in the statistical sense." The builder submits that it was clearly severable and that no reason for the finding that it was not severable was provided.
The builder takes issue with the Tribunal's decision in paragraph 15 of the costs decision in so far as the decision interprets the principles set out in the case of Bostik Australia Pty Ltd v Liddiard (2) [2009] NSWCA 304. The Member quoted an extract from that case to the effect that ordinarily a Court awarding costs to the successful party would do so without attempting to differentiate between issues on which the party had succeeded and other issues which the party had failed. The builder submits that when one examines that case fully further principles emerge. These further principles may be summarised in the following terms:

it may be appropriate to deprive a successful party of costs or a portion of costs if the matters upon which that party was unsuccessful took up a significant part of the trial either by way of evidence or by argument.
if an appellant loses on a separate issue argued on 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.
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 discretion of the powers of the Court, which power should be liberally construed.
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.

The builder argues that the issues concerning the departure from the original specification and of the number of piers required for rectification were disputed questions of fact and/or law and were severable. They both took up a significant amount of time in the trial. The homeowner failed on both issues. The builder failed in the argument that no piers were required, but limited the damage to the three already conceded by the builder's expert. Whilst mathematical precision might ordinarily be illusory, it is more able to be ascertained in a building matter such as this where there was a known scope. The builder was the successful party. The reasoning given for the rejection of the builder's contention does not elucidate why the contention was rejected.
The builder submits that the Tribunal did not considered apportionment of costs adequately given the degree of success which the builder had at trail in that the Tribunal did not provide any reasoning as to how the figure of 65% as opposed to some other proportion was derived. The builder acknowledges that some allowance should be made for the limited success which the owner had but that it should not equate to anything like 65%. No reasoning was provided as to how that particular figure was arrived at.
The builder also submits that the Tribunal did not take in to account any of the formal offers made by letter by the builder. Nor did the Tribunal advert to the disentitling conduct in the way the owner ran the case. The builder submits that there were two kinds of disentitling conduct on the part of the owner. The first was the failure to respond or to respond adequately to the offers which had been made by the builder. The builder refers to works required for the stabilisation of units one and two and says that the builder agreed to do that work back in September 2007 and sought access to do so. The builder's solicitor made a formal offer by letter dated 20 September 2007 which was "seemingly rejected" by the letter from the owner's solicitors dated 18 October 2007. The builder acknowledges that there was an order made much later by the Tribunal validating the owners refusal to have the builder return but says that had the 2007 offer been accepted then the subsequent proceedings would have been avoided.
The second type of disentitling conduct by the owner, so the builder submits, was the failure of the owner to conduct the proceeding in accordance with the orders of the Tribunal for provision of expert evidence including expert evidence as to quantum. The builder submits that if expert evidence had been provided in accordance with the directions of the Tribunal, the matter would have become more amenable to settlement.
The builder submits that the Tribunal below failed to refer to any of the builder's offers and that that constitutes error of law.

The Owners Appeal

The owners have filed their own appeal against the decision of the Tribunal. The owners say that the Tribunal made a number of errors of law in its cost decision - 1. That by concluding that the builder "had at all times admitted responsibility for the general defects" the Tribunal made an error of fact that led it to an error of law. The owners assert that this concession by the builder of such responsibility occurred during the third day of the liability hearing, and that there is no evidence of such an admission occurring before then. 2. That by concluding that, "At the conclave of experts … the builder had offered structural stabilization of three piers … for the purpose of settlement which offer was rejected by the owners," the Tribunal found facts for which there was no evidence.
The owner's submissions address both their appeal and the issues raised in the builder's appeal.
The owners submit that the concession made by the builder that it was liable for the non-structural defects was made only on the last day of the three day hearing. Additionally, the owners take issue with the builder's submission that the only significant and time consuming issue at the hearing on liability was the number of piers. The owners submit that the Tribunal had to hear evidence from both experts as to whether underpinning was required in circumstances where the builder, prior to the three day hearing, continued to deny liability for the structural issues. The owners maintain that the builder throughout the hearing continued to do so, arguing that little if any weight should be given by the Tribunal to Mr Baxendale's agreement at the expert conclave that piering was required. The owners assert that the builder continued to deny any liability in respect of the structural issues.
The owners submit that the Tribunal made specific findings with respect to the cause of the cracking in units 1 and 2, namely shoddy plumbing work by the builder which resulted in moisture undermining the foundations, which cracking would probably not have occurred had the foundations been constructed using piers. The owners therefore submit that they won on (a) causation, (b) on establishing that underpinning was the appropriate method of remediation, (c) by persuading the Tribunal that the builder should not be allowed to undertake the rectification work; and (d) partly won on the amount of underpinning required.
The owners take issue with the builder's submissions with respect to the severability of the piering and departures from original design issues for the purpose of the costs order, pointing to the fact that that the Tribunal specifically considered those issues and, in the exercise of its discretion, found that the issue was not severable in the circumstances. Further the owners submit that the issues concerning departure from the original design and the piering required to remedy the structural defect are not severable, and that the builder did not argue they were severable in its submissions to the Tribunal. In those circumstances the owners submit that there is no error of law.
With respect to the various offers made by the builder to repair the general defects (but not to stabilise the foundations) and the Calderbank offer of 7 August 2013 in which the builder offered to perform all the work specified in the report of the expert's conclave dated 10 August 2011, the owners said that they had lost all confidence in the builder. In support of this the owners relied on a decision of Senior Member Durie made in proceedings between the owner and the insurer (of which the builder was aware) that the owners were entitled to refuse the builder access to perform proposed remediation. Further, the owners relied on a finding by the Tribunal (at para 107 of the liability decision) that "it would be unreasonable for the Tribunal to make a work order that gave the builder the opportunity to carry out the work including the structural stabilisation for which in respect to the latter at least until this decision it had refused to acknowledge any responsibility." Finally, the owners submitted that it was not until the last day of the liability hearing that the builder accepted liability for the general defects "without proviso." Before then, the owners submitted the builder had agreed to rectify the general defects but had nonetheless denied liability for them.
Further the owners submitted that the offer contained in the Calderbank letter was uncertain, did not address the owner's costs or their concerns about the builder undertaking rectification works, and as a result did not contain a "true element of compromise." The owners argued that none of the letters of offer made by the builder to do work constituted a Calderbank offer
The owners submitted that the builder's suggestion that it had accepted liability for rectification for the structural defects before the liability hearing, (and that the only issue was to be determined by the Tribunal was the extent of piering work required to remedy those defects) was revisionist. While the owner's expert had agreed that two piers were required at the conclave, at the hearing he sought to retreat from that position.
The owners submitted that a consideration of the Tribunal's decision demonstrated they had succeeded in their cause of action against the builder, and should be entitled to their costs of the proceedings. In their own appeal the owners submitted that the Tribunal had erred by not awarding them the full costs of the proceedings. By granting them only 65% of their costs, as opposed to all their costs, the Tribunal had made an error of law. It had also made an error of law by not disclosing the basis on which it had come to the view that 65% was the appropriate order.
With respect to the builder's assertion that it had admitted liability for the general defects the owners submit that this did not occur until the third and last day of the hearing. While the owners accept that that the builder at one time offered to carry out rectification work on those defects, that offer was made without admission of liability and was withdrawn by the builder's solicitors in a letter dated 7 November 2007. The reasonableness of the owner's stance in not allowing the builder to carry out rectification was twice determined in the owners favour by the Tribunal.
As a consequence the owners submitted that the Tribunal had erred when it found that the builder "had at all times admitted responsibility for the general defects [26]." This was said to be inconsistent with the evidence and the Tribunal's finding in the liability decision that, the builder denied liability.
Further the owners submitted that the concession made by the Builders expert at the expert conclave that 3 piers were required was not itself an offer of settlement, and was not adopted by the builders or made the subject of an offer of compromise by them. The owners submitted that the Tribunal made an error of fact and law by wrongly finding in its costs decision, at para 26 that at the conclave the "builder had offered structural stabilization of three piers in an effort to compromise the dispute for the purpose of settlement which offer was rejected by the owners." Indeed, the owners submitted that the only offer made by the builder to undertake remedial work with respect to the installation of three piers was contained in a letter from the builder's solicitors dated 7 August 2013 (well after the liability hearing, and six months after the delivery of a decision on the limitation point) evidence of which, was not before the Tribunal. As a result the owners submit that the members finding that such an offer was made constituted a finding made without any evidentiary basis, and therefore an error of law. The owners submitted that that error infected the member's decision and led him into error on only allowing the owners 65% of the costs of the liability proceedings.
The owners submitted that they were completely successful in all issues in the proceedings, apart from the number of piers required to remedy the structural defect, in which they were partly successful.

Relevant legislation

The appeals each assert errors of law by the Tribunal, and as such can be brought as a matter of right: s 80(2)(b) of the Civil and Administrative Tribunal Act 2013 (the CAT Act). The powers of the Appeal Panel on appeal are set out in s 81 of the CAT Act.
Because the appeals both relate to proceedings which were commenced and were part heard before the Consumer Trader and Tenancy Tribunal, but were concluded after the jurisdiction of that Tribunal was transferred to NCAT, the proceedings are part heard within the meaning of the savings provision in clause 6(1) of Schedule 1 of the CAT Act. As a consequence clause 7(3) of Schedule 1 provides - (3) For the purposes of subclauses (1) and (2): (a) NCAT has and may exercise all the functions that the relevant existing tribunal had immediately before its abolition, and (b) the provisions of any Act, statutory rule or other law that would have applied to or in respect of the proceedings had this Act and the relevant amending Acts not been enacted continue to apply.
Section 53 of the Consumer, Trader and Tenancy Tribunal Act 2001 was concerned with costs. It relevantly provided - (1) Subject to this section and the regulations, the parties in any proceedings are to pay their own costs. (2) The Tribunal may, in accordance with the regulations, award costs in relation to any proceedings. (3) If costs are to be awarded by the Tribunal in accordance with the regulations, the Tribunal may: (a) determine by whom and to what extent costs are to be paid, and (b) order costs to be assessed on the basis set out in Division 11 of Part 3.2 of the Legal Profession Act 2004 or on any other basis. (4) In this section, costs includes the costs of, or incidental to, proceedings. (5) ….
Clause 20(4) of the Consumer Trader and Tenancy Tribunal Regulation 2009 then provided - (4) In any proceedings in respect of which the amount claimed or in dispute is more than $30,000, the Tribunal may award costs in relation to the proceedings in such circumstances as it thinks fit.
As the amount claimed by the owners against the builder exceeds $30,000 the Tribunal had the power to award costs in such circumstances as it thought fit.

Approach to the Appeals

In considering how to dispose of these appeals the Appeal Panel has determined to deal first with the discrete no evidence issues raised by the owners appeal, before turning to first consider issues relating to the offers made by the builder, and then progressing to the broader issues relating severability of issues for costs purposes, and the Tribunal's exercise of its costs discretion raised by the builder's appeal.

The owners' no evidence grounds

In paragraph 26 of its costs decision the Tribunal wrote - The builder has at all times admitted responsibility for the general defects but not for any structural stabilisation at the outset.
The owners submit that there was no evidence before the Tribunal that enabled it to reach this conclusion, and that the evidence in fact demonstrated that the builder had only accepted responsibility for the general defects on the third day of the liability hearing.
Prior to the hearing there is no dispute that the builder offered, on a number of occasions, to repair the general defects, but would not accept liability for the cost of having those repairs performed by somebody else. The owners refused to allow the builder to perform any repairs on the basis of a total loss of confidence.
A reading of the transcript of the hearing (p 84 and 85) reveals that on the first day of hearing counsel for the owners (Ms Kennedy) put before the Tribunal a work schedule, on the basis that it was agreed between the parties to list the general defects. There then ensued a discussion in which Mr Barham, who then appeared for the builder, took issue with a number of items, stating, with respect to the schedule that, "I haven't actually gone through it." Further discussion then ensued, some of which was not transcribable, resulting in no clear conclusion being reached as to the general defects.
On the third day of hearing the builder was represented by Mr Howlin, who clarified the builder's position with respect to general defects in the work schedule thus (9/5/12 53.17) - First of all, that the term in the work schedule are the defects and that they require rectification. The builder does not accept causation but repeats the builders offer to carry out that work subject to a work order, if the Tribunal were so minded, and the builder accepts that [if] the Tribunal is not so minded that some other third party would costly [sic] perform the cosmetic repair.
Whether this somewhat equivocal statement can be said to be an admission of responsibility for the general defects is questionable, given the builder's refusal to accept causation. It is the first time the builder accepted that someone else may carry out the work, but that is no more than an acceptance of the options open to the Tribunal in determining the issue.
The Appeal Panel is unable to find any evidence upon which the Tribunal could find that the builder "has at all material times admitted responsibility for the general defects." While the evidence demonstrates that the builder has at all times stood willing to rectify the general defects, there was no evidence before the Tribunal that it admitted responsibility for those defects. While prepared to rectify the defects it refused to accept liability for the costs of their rectification as demanded by the owners. The reality is that the builder "did not accept" causation of these defects.
This conclusion is consistent with what the Tribunal said in par 101 if its liability decision - The offer by the builder at the May 2012 hearing to carry out the work in respect to the general defects as well as the structural stabilisation work, provided that a liability was found against it for such work, does nothing other than confirm the entrenched position taken by the builder form the outset. The builder's submission to the Tribunal in effect is that it should make a work order against it in respect of such work for which it is found to have a liability.
The Tribunal's conclusion in paragraph 26 of the costs decision that "the builder has at all material times admitted responsibility for the general defects" was made without any evidence to support it. The absence of any evidence to support that finding constitutes an error of law (Australian Broadcasting Tribunal v Bond (1990) 21 ALD 1 and Kostas v HIA Insurance Services Pty Ltd (2010) 241 CLR 390)
It is important to note that because of the need to hear and determine a jurisdictional issue (also referred to as the limitation issue) raised by the builder during the course of the liability hearing, which the Tribunal directed be separately heard and determined, the Tribunal's decision on the liability issue was delayed until after that decision was determined. The Tribunal delivered its decision on the liability issues on 19 September 2014, some two and one-third years after the hearing. While the reasons for the delay are clear, such long delays are to be avoided as they give rise to disputes, such as exist here, as to what actually occurred in the hearing before the Tribunal.

The builder's offers

Between 2007 and the liability hearing in 2012 the builder sent a number of letters to the owners offering to undertake repairs to the building, both in an open letter and in letters marked "without prejudice except as to costs." Initially the builder offered to rectify all defects (with the stabilization work to be done using the "injection method") but that offer was subsequently withdrawn. The builder then offered to rectify all defects excluding any work associated with stabilizing the building foundation. In what was expressed to be a letter containing a Calderbank offer dated 7 August 2013 the offer was to rectify both the general defects and the stabilization work identified in the report of the experts' conclave. That last letter, it should be noted was dated some fourteen months after the hearing of the liability issues.
Central to all offers made by the builder was that it undertake the rectification works. This was one of the central issues between the parties as the owners at all material times refused to allow the builder to carry out the rectification as they had lost confidence in the builder. This position taken by the owners was found to be "not unreasonable" by Senior Member Durie in proceedings between the owners and the insurer in Owners Corporation SP 66595 v Allianz Australia Insurance Limited (Home Building) [2009] NSWCTTT 103 ). In the liability decision the Tribunal held that - 101 The offer by the builder at the May 2012 hearing to carry out the work in respect to the general defects as well as the structural stabilisation work, provided that a liability was found against it for such work, does nothing other than confirm the entrenched position taken by the builder from the outset. The builder's submission to the Tribunal in effect is that it should make a work order against it in respect to such work for which/, it is found to have a liability. I find that it would be unreasonable for the Tribunal to make a work order that gave the builder the opportunity to carry out the work including the structural stabilisation for which in respect to the latter at least until this decision it had refused to acknowledge any responsibility.
In the costs decision the Tribunal did not discuss the letters of offer or the submissions made by the parties with respect to those offers. This is said by the owners to constitute both a denial of procedural fairness and an error of law with respect to the effect of the offers. It needs to be observed that the Tribunal had already engaged with the issue as to the impact of the offer dated May 2012 in paragraph 100 of the liability decision.
In the Appeal Panel's view it would have been preferable for the Tribunal to engage with the parties submissions with respect to the letters of offer and their consequences on the costs decision. It could have done so simply, by pointing out that the outcome achieved by the owners was substantially more in their favour that that contained in the builder's offers, because the liability decision required the builder to pay damages, and denied it the right (insisted on in all the offers) to carry out the rectification work. The outcome achieved in the liability decision was therefore more advantageous to the interest of the owners that that contained in builders offers.
The offers therefore did not require the Tribunal to alter its costs decision on the basis that the outcome obtained by the owners was no better than what the builder had already offered.

Success in the proceedings

A central question raised in this appeal is who was the successful party in the proceedings between the owners and the builder. As has already been demonstrated the parties hold differing view on this question, because they are not in agreement as to what was in issue in those proceedings.
The Tribunal set out nine issues it had to determine at paragraphs 20 to 28 of the liability decision, thus - THE ISSUES 20 What was the cause of the building movement that gave rise to the significant cracking of varying degree to the internal walls of some of the units? 21 If the cracking was caused by foundation movement was such movement attributable to the change in footing design from pier and beam to a strip beam type. 22 To what extent was the foundation undermined by adverse moisture conditions. 23 To what extent were such adverse moisture conditions attributable to the builder? 24 If adverse moisture conditions were the likely initiating cause of the movement in the footing which has occurred, would such movement have occurred regardless of whether the footing was a pier and beam or a strip footing? 25 Did the failure to formally amend the Sutherland Council approved plans in relation to the changed footing design amount to a failure to comply with the law such as would be sufficient to establish a breach of the statutory warranty under s 18B(c) by the builder. 26 In the event that it is determined that the cause of the movement and cracking is attributable to any failure on the part of the builder is it reasonable to find that the appropriate rectification method requires underpinning the existing footing with piles and if so how many. 27 In so far as the claim against the insurer is concerned has there been a failure to mitigate by the owners refusal to have the builder return to rectify the general defects. 28 Whether or not the builder should be permitted to return to conduct such rectification works as are deemed appropriate.
Of these one (at para 27) related to the proceedings between the owners and the insurer alone and is not material to the cost issues between the owners and the builder.
As to the rest the Tribunal found that the footings were undermined by a "moisture event" attributable to plumbing failures. The Tribunal found that rectification required underpinning of units 1 and 2 by piering, and that the builder was not be entitled to undertake that work. The Tribunal rejected the owners' contention regarding the failure to formally amend Council's approved plans with respect to a change in footing design evidencing a breach of the statutory warranty under s 18B(c) of the Home Building Act 1989.
In the costs decision the Tribunal noted that the builder contended that the main issue in the case was the number of piers required: three piers as agreed by the builder's expert at the experts' conclave, or 22 as contended by the owners' expert. The Tribunal observed, at [26 -27] - …at the conclave of experts in August 2011 the builder had offered structural stabilisation of the piers in an effort to compromise the dispute for the purpose of settlement, which offer was rejected by the owners. Following rejection of such offer the builder conducted the defence of the application against it on the basis that no structural stabilisation was required and only conditionally offered on the final day of the hearing to carry out such structural work, in requesting a work order, if the Tribunal found it was responsible for it.
In submissions the owners correctly point out that the concession made by the builder's expert at the conclave that three piers were required to stabilise the structure was not an offer. The report of the conclave includes no such offer, and there is no evidence of any offer made by the builder to undertake that work prior to the conclusion of the liability hearing. A reading of the transcript of the evidence of the builder's expert demonstrates that he suggested that three piers were required in an effort to compromise the proceedings, not because it was necessarily the correct conclusion. This is consistent with the Tribunal characterisation of the manner in which the builder defended the proceedings, on the basis that "no structural stabilisation was required."

Severability

The builder submits that the issue concerning the extent of piering required to remedy the defective footings was severable from the other matters to be determined by the Tribunal, and that the Tribunal erred in law by finding that the issue was not severable (see par 30 of the costs decision). The builder goes on to argue that a significant part of the hearing was devoted to that issue on which it claims to have been successful, and that it is therefore entitled to its costs with respect to that issue.
In Bostick Australia Pty Ltd v Liddiard (No 2) the Court of Appeal wrote - 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. See also Sze Tu v Lowe (No 2) [2015] NSWCA 91 at [39-42].
As a reading of the liability decision and the transcript decision makes clear the builder conducted its defence with respect to the undermined footings on the following basis: 1. That the footings were not defective; 2. That the builder was not responsible for the footings being undermined; 3. If the Tribunal found the footings were defective due to some failure on its part, or had been undermined as a result of the builder's conduct, then: 1. The installation of only three piers was required to remedy the defects, rather than 22 as argued by the owners; and 2. A work order should be made allowing the builder to remedy the defects.
In the Panel's opinion there is no error in the Tribunal's finding that the issue of the extent of piering required was not severable form the other issues that it was required to determine with respect to the footings. In the context of the proceedings the extent of the piering required was merely one of a number of intermingled issues going to the nature of the problem with the footings, who was responsible for it, and how it could best be remedied. It was not clearly dominant or separable from those other issues.
On appeal the builder made the same submission with respect to whether the failure to formally amend Council's approved plans, with respect to a change in footing design, evidenced a breach of the statutory warranty under s 18B(c) of the Home Building Act 1989. The Tribunal found this not to be the case, The Tribunal did not directly deal with this issue when considering severability as there were no submissions to that effect in the builder's submissions on costs. In those circumstances we are not persuaded that there is an error of law in the Tribunal failing to consider the issue. We add that while the issue relating to the Council plans was clearly separable from the other issues relating to the footings, it was not so clearly dominant as to require that it be severed for the purposes of a costs order.

Disentitling conduct

The builder submits that the owners were not entitled to an order for costs in their favour by virtue of: 1. The determination of the claim by the Tribunal not beating the offer made by the builder. For the reasons already given we reject that contention; and 2. The owners' failure to conduct the proceedings in accordance with the directions given by the Tribunal resulted in delays, extra cost, and frustrated the ability of the parties to settle.
The later submission was not made directly by the builder in its submissions on costs, but was a submission made by the insurer in its submissions, which was adopted by the builder in its submissions. Specifically the insurer complained about the absence of admissible evidence from the owners as to quantum, and delays in filing that evidence.
The Tribunal did not address this submission in the costs decision. It should have done so. It should have done so as it was an issue in respect of which the parties had joined issue in a relatively substantive sense in submissions: Mitchell v Cullingral Pty Ltd [2012] NSWCA 389 at [116]. That failure is an error of law: Collins v Urban [2014] NSWCATAP 17; Prendergast v Western Murray Irrigation Ltd [2014] NSWCATAP 69 at [13], Donoghoe v Compass Housing Services [2015] NSWCATAP 97 at [148]
In the liability decision the Tribunal had made orders aimed at obtaining an agreed costing of the matters for which the builder was found liable. It made no adverse criticism of any party with respect to the absence or otherwise of evidence going to quantum. In those circumstances we are not persuaded that the conduct of the owners with respect to the production of evidence going to quantum was disentitling conduct as submitted by the builder.

The Tribunal's Apportionment

At par 34 of the costs decision the Tribunal wrote - In the circumstances having regard to all the factors relevant to the outcome (including the extent of the required piering and the fact that the determination of that issue was consistent with the builder's contention and offer rather than the owners), I determine in the exercise of the discretion afforded to me, that the fair and reasonable costs that the successful owners should be award is sixty five percent of their costs in pursuing this application against the builder.
Both parties allege errors of law by the Tribunal in the exercise of its costs discretion. The builder says that the Tribunal failed to explain how it reached the 65% figure and that this constitutes as error lf law. We do not accept this submission. A reading of the Tribunal's decision as a whole makes it clear that in reaching its decision as to costs that the Tribunal took account of a miscellany of factors, which led it to the conclusion it reached. It is not required to account, with mathematical exactitude, for how it reached the 65% figure, but to indicate the matters it took into account in reaching its decision. This it did.
The owners submit that the Tribunal erred in the exercise of tis costs discretion because it took into account matters which were not established as a matter of fact.
In Clarke v Tapp [2015] NSWADTAD 81 the Appeal Panel wrote - Under reg 20(4), the Tribunal has a discretion to award costs 'as it thinks fit'. On a question of law appeal, the exercise of a statutory discretion such as that in reg 20(4) can only be overturned in limited circumstances: House v The King [1936] HCA 40; (1936) 55 CLR 499 at 505-506. Those circumstances were summarised recently by the Court of Appeal in Hannaford v Commonwealth Bank of Australia [2014] NSWCA 297 at [14] by Beazley P, Emmett JA and Tobias AJA. The Court held that any attack on a discretionary decision must fail "unless it can be demonstrated that the decision maker: (a) made an error of legal principle, (b) made a material error of fact, (c) took into account some irrelevant matter, (d) failed to take into account, or gave insufficient weight to, some relevant matter, or (e) arrived at a result so unreasonable or unjust as to suggest that one of the foregoing categories of error had occurred, even though the error in question did not explicitly appear on the face of the reasoning.
In the present case it is clear that the Tribunal took into account as material factors affecting its costs decision, two matters that were clearly incorrect. These were that: 1. The builder had at all material times admitted liability for the list of general defects. As already discussed this was not the case. 2. That the builder had made an offer with respect to three piers, as opposed to the 22 pressed for by the owners. The builders offer was contingent on the Tribunal finding liability on its part, and, was subject to the proviso that the builder was to undertake the rectification work. It was not really an offer at all, and was not one which the determination of the Tribunal, from the perspective of the builder, in any sense "bettered."
By taking these matters into account in the exercise of its costs discretion the Tribunal made an error of law.

Appeal Panel's determination of costs

When one considers the matters upon which the parties joined issue it is apparent that the owners were successful in establishing liability for both the general and stabilisation defects, in resisting the builders' continuing application for a work order, and in obtaining an order for damages. The owners did fail in their argument concerning whether the failure to notify council of a change in footing design, evidenced a breach of the statutory warranty under s 18B(c) of the Home Building Act 1989. As we have already noted however, that was no so dominant an issue as to require that it be severed for the purposes of a costs order.
The Tribunal did accept the position advanced by the builder with respect to the piering work required if it was liable for the stabilisation defects, but it is clear that the builder did not accept such liability, and that the Tribunal was required to determine that issue. The builder also failed to succeed in pressing for a work order, which had been a fundamental part of its resistance of the owners' claim.
In the Appeal Panels' opinion the owners achieved substantial success in the proceedings. We can see no basis for severing issues in the proceedings. If the builder had admitted liability for the stabilisation defects and had contested the quantum of the rectifications costs, then there might be greater argument in favour of severing that issue for costs purposes. Because the builder maintained its denial of liability for the stabilisation defects, it kept the issues of lability and quantum alive with respect to those defects, which issues were intermingled.
The owners are entitled to the costs of the proceedings in full. Those costs should be paid by the builder, whose own application for costs fails.

Orders

The Appeal Panel makes the following orders: 1. The appeal numbered AP15/26940 by BS & JH Bailey Pty Ltd against the Owners Corporation of Strata Plan 66595 is dismissed. 2. The appeal numbered AP15/28665 by the Owners Corporation of Strata Plan 66595 against BS & JH Bailey Pty Ltd is allowed. 3. The order numbered 4 made by the Tribunal in matter no HB 08/44917 on 19 March 2015 is set aside. 4. In matter no HB 08/44917 the builder is to pay the owners' costs of the proceedings as agreed or assessed (including the costs of the owners in respect of the limitation point raised by the builder).

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: 10 December 2015

At a glance

Court

Decision date

Source

Judgment (16 paragraphs)

Parties

Cases Cited (22)