The appellants (the owners) entered into a contract with the respondent (the builder) for the carrying out by the builder of residential building work involving additions and alterations to the owners' property in Bulli.
The parties fell into dispute in relation to the building work carried out by the builder and it is apparent that the owners commenced proceedings in the Local Court at Sutherland.
On 12 January 2018 the owners filed a Statement of Claim in the District Court at Wollongong. It is not clear whether the proceedings had been transferred from the Local Court or whether fresh proceedings had been commenced.
On 9 May 2019, about four weeks before a hearing which had been fixed in the District Court, the proceedings were transferred by consent to the Consumer and Commercial Division of the Tribunal pursuant to s 48L of the Home Building Act 1989 (NSW) (HBA).
The evidence to be relied upon by both parties had been filed by that stage and the proceedings were listed for hearing before a Senior Member of the Tribunal on 20 November 2019. On that occasion the Tribunal made orders by consent which provided, in essence:
1. That pursuant to s 48O of the HBA the builder was to return to the property on 3 February 2020 and commence to undertake:
1. "the reasonable and necessary rectification works referred to in Table 4.1 of the Joint Report of the Structural Engineering Experts dated 8 March 2019"; and
2. "the rectification work described in the Revised Experts Joint Supplementary Report of the building experts, prepared by George Zakos and Anthony Capaldi, and dated 20 November 2019".
1. That the builder at its own cost (at reasonable rates) was to arrange for Mr Zakos and Mr Rod Broune to inspect the performance of the works identified in Orders 1(a) and (b) "throughout the works and upon its completion" on the basis that
1. "subject to appropriate co-ordination of the works by the builder, there should not be more than three inspections required for the above works";
2. The builder was to provide the owners with three days' notice of an inspection; and
3. All inspections were to occur during ordinary standard business hours.
1. The owners were to obtain all Council approvals necessary for the work that was the subject of Scott Schedule item 10;
2. The builder was to pay the reasonable cost of Mr Zakos' and Mr Broune's inspections;
3. That on the completion of the works the builder was to pay the owners the sum of $700 a week "for each week during which the property was required to be vacant for the purposes of performing the flooring works …, noting that a claim for rent did not form part of the [owners'] application before this Tribunal".
4. In the event the builder failed to comply with those orders, leave was granted to the owners, pursuant to the provisions of clause 8 of Schedule 4 of the Civil and Administrative Tribunal Act 2013 (NSW) (the NCAT Act), to renew the proceedings for the making of further directions and orders.
The Tribunal also made orders for the exchange of submissions concerning any question of costs.
Both parties filed submissions relating to the question of costs in accordance with those orders.
The owners sought the costs of the proceedings on the basis that they were the successful party. The builder relied upon a "Calderbank offer", being a letter dated 21 January 2019 from the builder's former solicitors to the owners' solicitors setting out an offer expressed to be made "without prejudice save as to costs" for the resolution of the proceedings.
The relevant parts of the letter were as follows:
Our client anticipates that the Court or Tribunal may, … order our client to return to your clients' property and continue the rectification work that our client was prevented from doing, notwithstanding that it has always been ready, willing and able to do so.
Accordingly and on this basis, in the interest of again seeking to resolve the matter and avoiding wasting the Court or Tribunal's resources, we are instructed by our client to extend the following further offer for your clients' consideration, without any admission as to liability:
1 The Defendant will return to [the property] within 6 weeks from the date of the acceptance of this offer, and undertake the following work:
a. The 'rectification works' detailed in the Structural Engineering Report of Rod Broune of Broune Group Consultants Pty Ltd dated 12 June 2018 (without any admission as to liability); and
b. The 'rectification works' detailed in the Expert Report on Building Costs for Rectification prepared by George Zakos of G L & Associates Pty Ltd dated 29 August 2018 (without any admission as to liability).
2 Our client will also attend to the following, in addition to the work identified in (1)(a) and 1(b) above :
a. ensure all necessary preliminaries including, but not limited to, building permits, Council bonds, insurances, storage, site amenities, waste disposal, access, hoardings, scaffoldings etc;
b. observe and implement all Work, Health and Safety requirements appropriate to the site and work conditions;
c. protect/remove any surfaces, building elements, objects, furniture, personal items etc likely to be affected by the works and to re-instate, return/locate or replace those building elements, objects, furniture, personal items etc on completion of the works;
d. ensure the work areas are clean and free from any foreign matter and dispose of all rubbish and debris on completion;
e. schedule the work in consultation with the Plaintiffs;
f. protect all household items landscaping and floor coverings during the performance of the works and make good any damage caused to floor coverings including but not limited to sanding any floor coverings damaged by the works; and
g. ensure compliance with the Building Code of Australia, the Office of Fair Trading Guide to Standards and Tolerances and industry standards.
3. The Defendant, at its own cost (at reasonable rates) is to arrange for George Zakos and Rod Broune to inspect the performance of the works identified at 1(a) and 1(b) above, throughout the works and upon its completion on the basis that:
a. Subject to appropriate co-ordination of the works by the Defendant, there should be not more than 3 inspections required for the above works;
b. The Defendant is to provide the Plaintiffs with three days' notice of an inspection; and
c. All inspections are to occur during ordinary standard business hours, being between the hours of 8.00am and 4.00pm, Monday to Friday (excluding any public holidays) and the Defendant will use his reasonable endeavours to coordinate with Mr Zakos and Mr Broune so as to facilitate the inspection at a time suitable to them.
4. The Defendant is to pay the reasonable costs of Mr Zakos' and Mr Broune's inspections, which are agreed to not be in excess of 3 inspections each (if necessary). All invoices issued by Mr Zakos and Mr Broune in respect of these inspections are to be by way of service on its solicitors … and are to be paid within 21 days, by the Defendant.
5. The works identified in this offer must be completed within 6 months from the day that the Defendant returns to the Property to commence the works.
6. The parties agree to execute a deed of settlement and release (Deed), formalising the settlement terms set out above. Our client will bear the reasonable costs of the preparation of the Deed.
7. The parties relinquish their rights in bringing any future claims against each other in relation to this dispute, to the extent permitted by law.
8. Upon execution of the Deed, your clients will obtain orders by consent pursuant to which its claim, as against our client in the District Court Proceedings No.2018/00012367 is dismissed.
9. The Court or Tribunal is to determine the question of costs.
This offer is open for acceptance in writing until 4.00pm, Monday, 4 February 2019 after which time it will immediately lapse.
The offer outlined above is made in accordance with the principles enunciated in the case of Calderbank v Calderbank [1976] Fam 93, and made expressly to be without admission or without prejudice to our client's position at law or otherwise. If this offer is not accepted, or otherwise lapses, our client proposes to rely upon the terms of this letter on the question of costs.
In particular, if the offer is not accepted and your clients do not achieve an outcome in the Proceedings which are materially better than the terms of our client's offer as set out in this letter, our client will, in due course:
a. seek an order that his costs from the date of this offer be awarded on an indemnity basis;
b. oppose your clients being awarded costs (if any) on and from the date of this letter; and
c. apply to have any costs would otherwise be awarded up to the date of this letter, reduced by the amount of costs our client incurs from the date of this letter.
The Tribunal dispensed with a hearing concerning costs pursuant to s 50(2) of the NCAT Act and, by a decision dated 2 March 2020, ordered that the builder pay the owners' costs up to 21 January 2019 (ie the date of the letter) on the ordinary basis and that the owners pay the builder's costs of the proceedings from 22 January 2019 on the indemnity basis.
The Tribunal accepted that the amount involved in the proceedings exceeded $30,000 and that therefore, by reason of Rule 38 of the Civil and Administrative Tribunal Rules 2014 (NSW), it was not necessary to find that there were special circumstances before making an award of costs.
The Tribunal further accepted that the owners had been successful in the proceedings and that it was appropriate that they be awarded their costs up to the date of the letter of 21 January 2019. No challenge is made in this appeal to either of those conclusions.
The Tribunal determined (at [29]) that the letter of 21 January 2019 "set out a genuine offer of compromise of the [owners'] claim in the Tribunal". The Tribunal further concluded that the owners "ended up worse off than if the offer had been accepted" although the Tribunal acknowledged that "the competing positions of the parties are finally balanced".
The owners had put forward four reasons why, they submitted, the outcome of the consent orders was more favourable to the owners than the terms of the offer:
1. The builder is liable to pay for alternative accommodation while the flooring works are being undertaken at $700 a week while the offer contained no provision for the cost of alternative accommodation;
2. Under the Tribunal orders the owners have the right to bring renewal proceedings if there is a default or further breach of the statutory warranties;
3. The letter of 21 January 2019 provided that the parties were to execute a Deed of Release which the owners had not been required to execute pursuant to the consent orders; and
4. The owners had not by the consent orders relinquished any rights to bring future proceedings;
The Tribunal concluded at [32]:
32. I find that the factors referred to at (2)-(4) do not persuade me that the applicants secured a better outcome in the form of the Tribunal orders compared to the respondent's offer. The NCAT Act allows an applicant to renew proceedings and the presence of that order in the Tribunal orders was no more than a formality to address a right which the applicants already possessed. The fact that there was no need for a deed of release has no consequence in my view since consent orders disposing of a dispute are another way of achieving the same result. Consent orders also will have the effect of estopping the right to bring future proceedings in respect of the same facts.
In respect of the fact that the builder was obliged to pay for accommodation, the Tribunal determined:
33. The respondent submits that the orders made by the Tribunal at Order 5 contained a note that 'a claim for rent did not form part of the Applicant's application before this Tribunal' and that as a result , the order could be understood as a commercial decision on the part of the respondent.
34. Be that as it may, the fact is that the applicants obtained the benefit of order 5 by reason of the Tribunal's orders and that benefit was not contained in the respondent's calderbank offer.
The Tribunal noted that by the letter of 21 January 2019 the builder had offered to carry out work, identified in an annexure to the builder's submissions on costs, which the builder submitted the consent orders made by the Tribunal did not require the builder to perform. Those items were cross-referenced to Mr Zakos' report.
The Tribunal relied upon that report and, by reference to it, calculated the value of the work that the builder would have been obliged to carry out if the owners had accepted the offer of 21 January 2019, but was not obliged to carry out under the Tribunal orders of 20 November 2019, at $19,884.40. The Tribunal excluded one item listed in the builder's annexure (underfloor heating to the ground floor bathroom) because "the works scope is subject to further testing and there is a possibility that the builder may have to carry out all the rectification work in relation to this item".
The Tribunal concluded that the fact that, by the letter of 21 January 2019, the builder had offered to undertake work, which it was not ultimately required to carry out, to a value of $19,884.40, "outweighed the benefit of Order 5 which required a payment of $700 while flooring works were undertaken".
The Tribunal determined that the owners had acted unreasonably in not accepting the builder's offer made in the letter dated 21 January 2019. The Tribunal's reasons for reaching that conclusion were as follows:
40. First, the respondent virtually capitulated to the applicants by agreeing to the rectification work the subject of the applicant's expert reports, in agreeing to do the work referred to in paragraph 2 of the offer and arranging for the inspections in paragraph 3 of the offer and agreeing to make the payments in paragraph 4 of the offer.
41. Secondly, the time allowed for consideration of the offer although not lengthy was reasonable, especially having regard to the comprehensive nature of the offer.
42. Thirdly, the offer was clear beyond doubt as to its content and detail.
43. Fourthly, the offer made it plain that if the offer was not accepted an application for indemnity costs would be made.
44. Finally, I find that it was unreasonable for the applicants not to have accepted the offer given its wide ranging nature and virtual capitulation. The very nature of litigation makes it unlikely or even rare than an applicant will be successful on every single point raised in a building claim. That consideration made it unreasonable for the applicants to have refused an offer that provided them with that certainty.
The Tribunal determined that the fact that the offer left the question of costs to be determined by the Tribunal did not make the offer unreasonable or not genuine, the Tribunal noted that "had the offer been accepted and costs argued before the Tribunal, the offer could have been tendered in the costs proceedings and it is my view that the [owners'] prospects of recovering their costs to date at the time of the expiration of the offer would have been very strong".
The owners appeal against the order requiring them to pay the builder's costs on the indemnity basis from 22 January 2019.
[2]
Scope and nature of internal appeals
A decision concerning the awarding of costs in proceedings in the Tribunal is an "ancillary decision" of the Tribunal: section 4 of the NCAT Act.
By virtue of s 80(2)(b) of the NCAT Act, internal appeals from ancillary decisions of the Tribunal may be made as of right on a question of law, and otherwise with leave of the Appeal Panel.
The circumstances in which the Appeal Panel may grant leave to appeal from decisions made in the Consumer and Commercial Division are limited to those set out in cl 12(1) of Schedule 4 of the NCAT Act. In such cases, the Appeal Panel must be satisfied that the appellant may have suffered a substantial miscarriage of justice because:
1. The decision of the Tribunal under appeal was not fair and equitable; or
2. The decision of the Tribunal under appeal was against the weight of evidence; or
3. Significant new evidence has arisen (being evidence that was not reasonably available at the time the proceedings under appeal were being dealt with).
In Collins v Urban [2014] NSWCATAP 17, the Appeal Panel stated at [76] that a substantial miscarriage of justice for the purposes of cl 12(1) of Schedule 4 may have been suffered where:
… there was a "significant possibility" or a "chance which was fairly open" that a different and more favourable result would have been achieved for the appellant had the relevant circumstance in para (a) or (b) not occurred or if the fresh evidence under para (c) had been before the Tribunal at first instance.
Even if an appellant from a decision of the Consumer and Commercial Division has satisfied the requirements of cl 12(1) of Schedule 4, the Appeal Panel must still consider whether it should exercise its discretion to grant leave to appeal under s 80(2)(b).
In Collins v Urban, the Appeal Panel stated at [84] that ordinarily it is appropriate to grant leave to appeal only in matters that involve:
(a) issues of principle;
(b) questions of public importance or matters of administration or policy which might have general application; or
(c) an injustice which is reasonably clear, in the sense of going beyond merely what is arguable, or an error that is plain and readily apparent which is central to the Tribunal's decision and not merely peripheral, so that it would be unjust to allow the finding to stand;
(d) a factual error that was unreasonably arrived at and clearly mistaken; or
(e) the Tribunal having gone about the fact finding process in such an unorthodox manner or in such a way that it was likely to produce an unfair result so that it would be in the interests of justice for it to be reviewed.
[3]
The grounds of appeal
The owners did not seek leave to appeal but rested their appeal entirely on the proposition that the Tribunal made errors of law. The owners' Notice of Appeal identified eight grounds of appeal which can be summarised as follows:
1. The Tribunal erred in finding that the letter was capable of grounding an order for indemnity costs as it did not "comply with the principles of a Calderbank offer" as:
1. It did not include an offer to pay the owners' costs;
2. It was not capable of bringing certainty and finality to the dispute in the proceedings;
3. It contained additional conditions including the requirement to enter into a Deed of Release.
1. The Tribunal erred in finding that the time allowed for consideration of the offer was reasonable;
2. The Tribunal erred in finding that the builder's offer entitled the owners to bring renewal proceedings as the offer was made at a time when the proceedings were in the District Court;
3. The Tribunal erred in "rejecting the matters identified in [31]", that is:
1. that the builder was liable to pay for alternative accommodation;
2. that the owners had the right to bring renewal proceedings;
3. that the consent orders did not impose a requirement of a Deed of Release; and
4. that the consent orders did not involve the relinquishment by the owners of any rights to bring future proceedings.
1. The Tribunal erred in finding that the owners were ultimately worse off through not accepting the builder's offer;
2. The Tribunal erred in finding that the rent payable under Order 5 was payable only while flooring works were undertaken rather than throughout the period that the works were being undertaken;
3. The Tribunal erred in finding that the owners' failure to accept the builder's offer was not reasonable in that:
1. the builder's offer did not include an offer to pay the owner's costs;
2. the builder's offer did not bring certainty or finality in that "the [owners] were not relieved of the cost and risk of further litigating including the determination of costs";
3. the builder's offer contained additional conditions which were not amenable to Court orders at the time the respondent's offer was made.
1. The Tribunal erred in the exercise of its discretion in failing to do justice between the parties having regard to:
1. the entitlement of the owners to an order for costs;
2. finding that the owners were worse off by an amount calculated to be at least $19,848.40 "where those matters related to works which were not 'residential building work' within the meaning of the HBA"; and
3. taking into account an irrelevant consideration namely the benefit of certainty of the owners accepting the builder's offer.
[4]
The Owners' submissions
The owners' written submissions summarised their argument in a way which in one sense reduced the grounds of appeal to four:
1. That the Tribunal erred in finding that the offer was a "viable Calderbank offer";
2. That the Tribunal erred in finding that the owners did not better the builder's offer;
3. That the Tribunal erred in finding that the owners acted unreasonably in rejecting the builder's offer; and
4. That the Tribunal failed to properly exercise the costs discretion and "instead applied a formulaic response as if the [builder's] offer was an offer of compromise".
The owners acknowledged that a decision in relation to costs is a discretionary decision and recognised that an appeal from such a decision is subject to the principles laid down in House v R (1939) 55 CLR 499 at 504-505. There, the High Court said:
The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.
[5]
Not a valid Calderbank offer
The appellant submitted that it was an "essential requirement" of a Calderbank offer that it be "unambiguously clear [and] capable of being accepted and thereby concluding the proceedings by creating a binding contract". The owners cited Kemp v Ryan [2012] ACTCA 12 at [12] and Chapel Road Pty Ltd v ASIC (No 11) [2014] NSWSC 636 at [28]. The owners submitted that the letter of 21 January 2019 did not meet that requirement because it did not provide for the builder to pay the owners' costs.
The owners further submitted that the Tribunal did not construe the offer at the time it was made because in January 2019 the proceedings remained in the District Court and had yet to be transferred to the Tribunal. The owners submitted that the District Court did not have the power to grant a work order.
The owners also submitted that the offer did not meet the requirements of an offer of compromise, which the owners submitted was relevant in assessing the significance of an offer made in the District Court.
[6]
Not unreasonable for the owners to reject the offer
The owners submitted that the finding that the owners ignored the benefit of certainty did not recognise that the offer provided no certainty as to costs or that the offer did not provide the owners with the right to enforce the new proceedings and denied the owners the right to bring future claims.
In oral submissions the owners particularly relied upon the benefit which they submitted the consent orders provided by reason of s 101 of the HBA. That section relevantly provides:
101 Deemed insolvency of contractor for insurance purposes
(1) A contract of insurance in relation to residential building work required by section 92 or 96 must include provision that deems the suspension of a contractor's licence under section 42A to constitute the insolvency of the contractor for the purposes of the application of the contract to any loss that is the subject of a building claim order made against the contractor that remains unsatisfied.
Section 42A of the HBA relevantly provides:
42A Automatic suspension of licence for failure to comply with order to pay money in relation to building claim
(1) In this section -
building claim has the same meaning as in Part 3A, and includes a claim for the payment of an unspecified sum of money that arises from a supply of building goods or services as referred to in section 48A.
licence means a contractor licence (whether or not an endorsed contractor licence).
(2) If the holder of a licence fails to comply with an order of a court or the Tribunal to pay an amount of money in respect of a building claim by the due date, the licence is, subject to this section, suspended until such time as the Secretary is satisfied that the order has been complied with.
We understand the owners' submission to be that, by reason of the right of renewal in the event of non-compliance with the consent orders, the owners' rights under the builder's home owners warranty insurance were greater under the consent orders than they would have been if they had accepted the offer.
The owners also submitted that, because the Tribunal found that the position was "finely balanced", "it is axiomatic that the [owners'] rejection of the offer was not unreasonable".
[7]
Finding that the offer was not better
The owners submitted that the offer and the consent orders were incapable of quantitative comparison. In particular the owners submitted that the consent orders provided for payment to the owners of $700 per week while the work was being undertaken, the value of which could not have been assessed at the time the offer was made. The owners noted that the only indicator of that value was that the respondent's offer included a provision for the rectification work to take six months.
The owners further submitted that the fact that the offer did not include an offer to pay the owners' costs prevented the owners from making an informed analysis of the offer.
The owners also submitted that it could be assumed that, in the course of the carrying out of rectification works under their supervision, the owners' experts would have made concessions permitting the builder not to carry out works the subject of the offer in the letter of 21 January 2019 which were not necessary.
[8]
No exercise of the costs discretion
The owners submitted that the Tribunal exercised its discretion to award indemnity costs in a formulaic manner. The owners submitted that the Tribunal proceeded on the basis that, once it was found by the Tribunal that the offer was more favourable than the final result, it was necessarily unreasonable of the owners to reject the offer.
The owners also submitted that the Tribunal did not consider other options, such as that there should be no order as to costs or that costs should be awarded to the builder on the ordinary basis, and that the Tribunal simply assumed that the natural consequence of not accepting a Calderbank offer was an award of indemnity costs.
[9]
Builder's submissions
The builder's written submissions suggested that the owners had not pressed Grounds 3, 4 and 6 as outlined in their Notice of Appeal. We do not understand the owners' case to be so limited. As noted above, the owners' written submissions did not specifically address the eight grounds of appeal but rather re-stated their submissions under the four headings outlined above. The issues raised by Grounds 3, 4 and 6 were maintained by the owners.
The builder submitted that there is no definitive rule that a valid settlement offer must contain an offer to pay the offeree's costs. The builder submitted that the Courts had "shied away from fettering the costs discretion by such unyielding rules".
The builder submitted that the proposed offer did not envisage further negotiations and that the requirement of the execution of a deed of settlement and release was a standard practice in settlement offers. The builder also submitted that the offer did not require the District Court to make a work order and that the District Court was capable of assessing the content of the offer and resolving the question of costs, had the offer been accepted.
The builder submitted that the time allowed for consideration of the offer was reasonable. The builder pointed to a series of earlier offers dating from May 2018 which were before the Tribunal in its consideration of the costs issues. The builder relied upon the observation of Newnes JA (with whom Buss and Murphy JJA agreed) in Pro Property Pty Ltd v Orchard Holdings Pty Ltd [2013] WASCA 283 at [58]:
… everything turns on the circumstances of the particular case. There is not, and there cannot be, any stipulation as to a minimum time which an offeree must have to consider an offer. Nor does the fact that an offer is made shortly before the trial necessarily diminish the weight to be given to the offer on the question of costs. Whilst it is obviously desirable that reasonable offers of settlement be made at an early stage of proceedings, it is commonly the case that offers are not made until shortly before trial. The reasons for that are obvious: the preparation for trial will almost invariably place the parties in a much better position to assess their prospects of success, and an imminent trial focuses minds in a way that its distant prospect generally does not.
The builder did not dispute that the question whether the owners were worse off by reason of the final consent orders was finely balanced, but submitted that the Tribunal appropriately reached the conclusion that the owners were worse off. The builder submitted that the Tribunal's conclusion in that regard was a proper and principled exercise of the Tribunal's function and of its costs discretion.
The builder submitted that the offer and the consent orders were not incapable of quantitative comparison and pointed out that in fact both parties had engaged in a process of quantitative comparison in their submissions to the Tribunal.
In respect of the question whether the owners acted unreasonably in not accepting the offer, the builder submitted that it should not be assumed that the deed of release required to be executed by reason of the letter of offer would have sought to exclude the statutory warranties implied by s 18B of the HBA or otherwise breach the HBA.
In respect of the owners' submission that the Tribunal had failed to do justice between the parties, the builder submitted that "the Tribunal had regard to all relevant considerations - it received detailed submissions in chief and reply from the parties through their counsel - and it exercised its discretion in a principled, reasoned and judicial manner".
The builder cited Dal Pont, Law of Costs:
The costs consequences that ultimately flow from the making of Calderbank offers rest entirely within the courts' statutorily conferred costs discretion, which is grounded in considerations of justice. Discretion carries with it the notion of flexibility, a notion that Judges are, in this context, keen to maintain and foster.
The builder also submitted that the owners' submission that the Tribunal erred in failing to consider other alternatives to the award of indemnity costs was not raised by the Notice of Appeal and should not be entertained.
By way of contention the builder also submitted that the provision for payment of rent should not have been taken into account. The builder submitted that the Appeal Panel may infer that the agreement to make that rental payment was "a commercial decision on the part of the builder".
[10]
Consideration
It is important in considering the owners' submissions to bear in mind that, as the owners acknowledged, a decision on costs is a discretionary decision which can only be reviewed on appeal on the bases laid down in House v R, which we have set out above.
Although, as we have noted above, the owners' written submissions did not directly address the grounds of appeal set out in the owners' Notice of Appeal, we consider it appropriate to deal with the owners' case by addressing the grounds of appeal in turn, albeit in a different order.
[11]
Ground 1 - the letter of 21 January 2019 was not a Calderbank offer.
We do not accept the owners' submission that the letter of offer did not meet the requirements of a Calderbank offer. There is no magic in the description "Calderbank letter" or "Calderbank offer", that is merely a convenient term for an offer of settlement expressed to be made "without prejudice except as to costs".
There is no minimum standard for such a letter or "essential requirement" which an offer made in such a letter must meet before it may be taken into account in determining questions of costs.
It may be accepted, as was held in Kemp v Ryan and Chapel Road v ASIC (No 11), that, to be relevant in relation to any question of costs, an offer must be capable of acceptance so as to as give rise to a binding agreement. However, the fact that the letter did not include an offer to pay the owners' costs did not make it not capable of acceptance, nor did the fact that the letter required a deed of release to be executed. There is no rule requiring that an offer of settlement, to have effect as a Calderbank offer, must resolve all issues between the parties. The decisions in Kemp v Ryan and Chapel Road v ASIC (No 11) did not, contrary to the owners' submission, determine otherwise.
The first ground of appeal must fail.
[12]
Ground 5 - The owners were not worse off in the ultimate result
The Tribunal correctly considered the effect of the offer by a two stage process. That is, by first determining whether the owners had in the ultimate result of the proceedings bettered the terms of the offer and, secondly, if so, whether it was unreasonable of the owners to reject the offer.
In respect of the first question, whether the owners bettered the offer, the Tribunal found that question finely balanced, but ultimately concluded that the owners were worse off in the final outcome of the proceedings than they would have been if they had accepted the offer.
The Member assessed the value of the work which the builder had offered to do under the offer which it was not required to do by the consent orders. The value assessed by the Tribunal, that is almost $20,000, was substantial. The owners' submission that the experts might have released the builder from its obligation to carry out some of that work is mere speculation. The owners did not point to any basis in the evidence before the Tribunal upon which the Tribunal might reasonably have so concluded.
The comparison between the offer and the consent orders might have been difficult but we do not accept that it was impossible, or not capable of quantification. The offer and the consent orders were to a large degree directly comparable in that both involved the builder carrying out rectification work under the supervision, paid for by the builder, of the owners' experts. The owners raised four points of difference and the Tribunal dealt with each.
We do not accept the builder's contention that the order for payment of rent should be disregarded as a commercial decision on the part of the builder. Clearly it was a commercial decision on the part of the builder to agree to pay rent while the owners were required to vacate the premises but that is no reason why that element of the final outcome of the proceedings should be disregarded.
However, there is no basis upon which it could be said that the rent the builder would be required to pay pursuant to the consent orders would be likely to exceed the nearly $20,000 assessed by the Tribunal as the value of the work which the builder was not required to perform under the final consent orders. In this regard we note that the order requiring the builder to pay rent was clearly limited to the period that it was necessary to vacate the premises to permit the flooring to be rectified. The owners' submissions, to the extent that they were predicated upon the proposition that the order required the builder to pay rent for the entirety of the period of rectification, were unfounded.
With respect to the other factors relied upon by the owners as making the consent orders a better outcome for the owners than the terms of the letter of offer, we consider that the Tribunal was correct in accepting that a deed of release would have the same effect as a consent judgment. There was no reason why the Tribunal should have concluded that the deed of release would be required to include terms which would involve a breach of the HBA.
We also consider that the Tribunal was correct in concluding that the consent orders would have the same effect as the relinquishment by the owners of the right to bring "future claims against [the builder] in relation to the dispute, to the extent permitted by law" which was required by clause 7 of the letter of 21 January 2019.
The owners are correct in submitting that the acceptance of the offer would not have given rise to a right to renew the proceedings in the event the work was not performed. That right only arises in respect of orders of the Tribunal.
However, had the owners accepted the offer, they would nevertheless have had the right to seek orders in the Tribunal for the payment of compensation for breach of the terms of the offer, if the work had not been performed. If the owners then obtained a money order in the Tribunal, the consequences flowing from ss 42A and 101 of the HBA would have followed.
We do not consider that the capacity to apply directly for renewal of the proceedings rather than indirectly for compensation for breach of the settlement agreement was a substantial or even relevant distinction between the terms of the offer and the final consent orders.
The fifth ground of appeal must fail.
[13]
Ground 2 - the time allowed for consideration was inadequate
We find that the Tribunal made no error in concluding that the offer was open for a sufficient time. There is no minimum time for which an offer must be left open. The question whether an offer was open for an appropriate or sufficient length of time depends upon the circumstances.
In County Securities Pty Ltd v Challenger Group Holdings Pty Ltd (No.2) [2008] NSWCA 273 an offer had been served upon the defendants at 12.30 pm on a Friday and was expressed to be open until 4 pm on the following Tuesday which was the week before the commencement of the trial. The defendants submitted that the offer should not have costs consequences as they had not been given sufficient time to consider it.
McColl JA (with whom Spigelman CJ and Beazley JA agreed) stated at [35]:
35 The next question is whether Challenger and CHL had an appropriate opportunity to consider and deal with the offer. In my opinion they did. It smacks of naivety to contend that Challenger and CHL were so busy devoting their time to preparation for trial that they could not consider the offer. The period leading up to the trial is precisely when parties are often in the best position to consider an offer. While compromise should be considered from when a party's claim is foreshadowed, clearly the further the process of preparation for trial has advanced, the better will the recipient of an offer be able to assess its prospects of success. Experienced practitioners know that decisions as to whether offers should be accepted are often made in a matter of hours, not days. Further, County had, in my view, clearly explained the basis of its claims on the two earlier occasions to which I have referred. By 9 February 2007 Challenger and CHL had County's affidavit evidence and must have been in a position to evaluate it in light of its own case, an issue to which I will return when considering the reasonableness of the rejection of the offer. In any event, had Challenger and CHL needed more time to consider the offer, they could have asked for it: Elite [Elite Protective Personnel Pty Ltd v Salmon [2007] NSWCA 322] (at [149]) per Basten JA. Instead they either responded with what could only be described as a disdainful offer of $50,000 inclusive of costs or, if their letter preceded County's, chose to sit on their offer. It can be inferred that they had evaluated what they regarded as County's prospects of success - wrongly as the judgment in this Court makes clear - at the time they sent their 9 February offer.
That passage was cited by Newnes JA in the Pro Property decision which was relied upon by the builder, and referenced in the passage from that decision which we have set out above.
In this case there had been earlier correspondence in relation to settlement and it cannot be said that the owners had not had an opportunity to consider the terms upon which they were prepared to settle the proceedings well in advance of the receipt of the letter of 21 January 2019. The owners did not seek to establish any reason why they were not able to give consideration to the offer. The offer was open for a period of two weeks. Although that period included the Australia Day public holiday, it was ample time for the owners to give consideration to the offer.
The second ground of appeal must fail.
[14]
Ground 7 - the failure to accept the offer was not unreasonable
We do not accept the owners' submission that the Tribunal failed to consider whether it was unreasonable for the owners not to accept the offer. The Tribunal's reasons for so finding are set out in paragraphs [40] to [44] which we have extracted above.
Once the Tribunal found that the offer provided a better result for the owners than the consent orders and that the owners had had sufficient time to consider the offer, the question whether it was unreasonable to reject the offer was a matter of judgment and we find no error in the Tribunal's consideration of that question. We do not accept the owners' submission that, because the comparison between the offer and the final orders was "finely balanced", it was "axiomatic" that it was not unreasonable to reject the offer.
The fact that the offer provided certainty was not irrelevant to the Tribunal's consideration whether it was unreasonable to reject the offer. The builder's offer represented a substantial capitulation to the owners in providing for the rectification of most if not all of the defects of which they complained, and provided for the builder to pay for the supervision of rectification works by the owners' own experts.
The fact that the offer did not include an undertaking to pay the owners' costs was a factor which might have been taken into account in considering whether the rejection of the offer was unreasonable. However, it is no more than a factor and the Tribunal was entitled to conclude that it was outweighed. As the Tribunal pointed out, given that the offer represented almost a complete capitulation, the owners should have recognised that if they accepted the offer they would be well-placed to obtain an order for the payment of their costs.
The owners did not point to any evidence which suggested that there was any reason why the owners might not have been confident in that regard.
For the reasons we have set out above in relation to the first and fifth grounds of appeal (at [60], [68] and [69]), we do not consider the Tribunal made any error in concluding that the additional conditions in the offer, that is the provision of a deed of release and the relinquishment of the right to bring further claims, were not a reason to conclude that it was not unreasonable to reject the offer.
Also for the reasons we have set out above (at [70] - [72]), we do not consider that the fact that the owners would not, had they accepted the offer, have been entitled to bring renewal proceedings was a reason to conclude it was not unreasonable to reject the offer.
Accordingly the seventh ground of appeal must fail.
[15]
Ground 3 - the offer did not entitle the owners to bring renewal proceedings.
We have addressed this issue at [70] - [72] above. Although it is correct to say that, if the owners had accepted the offer, they would not have had an immediate right to bring renewal proceedings in the event the builder had not completed the work, for the reasons set out above at [71] - [72] we do not consider the Tribunal erred in finding that the availability of renewal proceedings in the Tribunal did not mean that the owners secured a better result by the consent orders.
The third ground of appeal must fail.
[16]
Ground 4 - the Tribunal erred in rejecting the matters identified in paragraph 31
We have already addressed the issues raised by this ground of appeal in our consideration of ground 5 above. For the reasons set out at [67] - [72] above, the fourth ground of appeal must fail.
[17]
Ground 6 - the significance of the order relating to the payment of rent
We have already recorded at [67] above our view that the rent payable under Order 5 was clearly payable only during any period that it was necessary to vacate the premises to enable flooring works to be undertaken. In our view the owners' submissions proceeded on a misconstruction of Order 5 of the consent orders. The consent orders did not provide for rent to be payable throughout the whole period of rectification.
The sixth ground of appeal must fail.
[18]
Ground 8 - failure to do justice between the parties
We have addressed the issues raised by the eighth ground of appeal in our consideration of Grounds 1, 5 and 7. To the extent that Ground 8(b) asserted that elements of the works included in the offer were not residential building work within the meaning of the HBA, that ground of appeal was not the subject of any written or oral submissions by the owners. The owners have not pointed to anything in the offer or in the evidence before the Tribunal which would suggest the relevant works were not residential building works.
The eighth ground of appeal must fail.
[19]
The failure to consider alternative orders
We have noted at [44] above a further issue raised by the owners. That was the failure by the Tribunal to consider whether the appropriate basis upon which the owners should be ordered to pay costs was the indemnity basis or some other basis.
As the builder correctly submitted, that issue was not raised in the owners' grounds of appeal. As we have noted at [54] above, the builder submitted that the owners should not be permitted to depart from the Notice of Appeal to rely upon that further issue.
We accept the builder's submission. The issue was not raised in the Notice of Appeal. No application has been made to amend the Notice of Appeal. We do not consider it appropriate to permit the owners to raise the issue without a formal application to do so.
Accordingly, the appeal will be dismissed. The parties sought an opportunity to be heard on the costs of the appeal. We will make orders permitting the parties to file submissions concerning the costs of the appeal.
The Appeal Panel's orders are:
1. Appeal dismissed.
2. The respondent may file written submissions in respect of the costs of the appeal by 1 February 2021.
3. If the respondent files submissions in accordance with Order 2, the appellants may file submissions in response by 22 February 2021.
4. The respondent may file submissions strictly in reply by 8 March 2021.
5. The submissions should address the issue whether the question of cost can be dealt with on the papers and without a further hearing.
[20]
I hereby certify that this is a true and accurate record of the reasons for decision of the New South Wales Civil and Administrative Tribunal.
Registrar
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
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Decision last updated: 07 January 2021