This appeal concerns a challenge to procedural orders made by the primary Principal Member on 18 September 2017 in the proceedings below.
The orders were made on 18 September 2017 on a transfer application made no earlier in that form than 14 September 2017. The hearing of the matter had been set by the Tribunal on 11 July 2017 for 20 September 2017, after a number of directions hearings and adjustments to directions to prepare the matter for hearing.
The substantive proceedings are a claim for alleged defective works on a strata development at Killara New South Wales by a builder engaged by the appellant developer (the respondent in the proceedings below) (the developer). The builder was insolvent at the time the proceedings were brought.
It was common ground that the proceedings were brought on 21 December 2016, one day before the limitation period expired. The respondent to this appeal was the applicant owners' corporation (OC) in the proceedings below.
The proceedings were brought in the Tribunal, which has jurisdiction to a limit of $500,000 under s 48K(1) of the Home Building Act 1989 (NSW) (HBA). , Contrary to the then procedural requirements of the Tribunal in then Consumer and Commercial Division Procedural Direction 4 para 2, the application commencing these proceedings was not accompanied by an expert report that denominated the defects and quantified the claim. The Procedural Direction said:
"Applicants should only make an application when they are ready to proceed with their case, having obtained all necessary expert reports and other relevant documents."
Ralan (Culworth) Pty Ltd v Owners Corporation SP 83405 [2017] NSWCATAP 223 | Case summary | Zoe
In those circumstances, the developer respondent was reasonably entitled to assume that the alleged defects were in claimed quantum under the Tribunal jurisdictional limit and to prepare its response and conduct the preparation and cost management of its case accordingly.
The application set out incomplete particulars as to the alleged defects.
An expert report on defects and quantum is required from the outset in a home building matter, in order to define the applicant's case as to enable the respondent to know from the outset in some supported detail the case it has to meet. In home building matters, supported detail of the nature and amount of claim is central to liability, quantum and jurisdiction. As the primary member said at [26]: "Establishing the quantum of the claim was essential and should have been done before the proceedings were commenced".
Such a report is an important, indeed a central, aid in home building matters to achieving the guiding principle under s 36(1) of the Civil and Administrative Tribunal Act 2013 (NSW) (CATA) that the Tribunal is to facilitate the just, quick and cheap resolution of the real issues in the proceedings. That guiding principle is expressed in s 36(1) to be the guiding principle of the statute itself and the "procedural rules". Under CATA s 36(2) the Tribunal "must give effect to the guiding principle when it … exercises any power given to it by [CATA] or the procedural rules". Under s 36(3) parties and their legal representatives are under a duty to co-operate with the Tribunal to give effect to the guiding principle "and, for that purpose, to participate in the processes of the Tribunal and to comply with the directions and orders of the Tribunal". Under s 36(4) the Tribunal's practice and procedure is to be implemented so as to facilitate resolution of the issues between the parties in such a way that the cost to the parties and the Tribunal is proportionate to the importance and complexity of the subject-matter of the proceedings. (For completeness, it should be noted that neither party pointed to any object or principle in the HBA that was inconsistent with the foregoing, as required to be considered by s 36(5)).
There was a number of directions hearings and timetable adjustments to prepare the matter for hearing:on10 February 2017, 20 April 2017 and 16 June 2017. The directions expressly referred to filing and service of expert reports and a Scott Schedule on behalf of the OC: by 24 March 2017 from the 10 February direction; then to 29 April 2017 by consent; then 27 July 2017 with an option to rely upon the developer's expert evidence. The reasons for the 10 February 2017 directions expressly said that an extended timetable had been granted to allow the parties to consider and explore settlement. The 20 April 2017 orders noted that the requested extension by the OC was made 2 weeks after the OC's documents were due, despite an extended time having been already allowed to explore settlement, that consent was irrelevant, that the only reason given for extension of time was settlement discussions which had already been factored in to the original timetable, and that any further requests for extension by the OC "will only be allowed in exceptional circumstances and any such application must also have supporting documentation".
The OC did not comply with any of the directions or extensions of time in those directions in respect of expert evidence as to quantum that it wished to rely upon at hearing, including the last to file that evidence by 27 July 2017. The 20 April extension of time was by consent, the last one on 16 June 2017 to 27 July 2017 was not. The OC filed, 6 days late, a defects report after its expert had missed two joint site meetings. The developer filed its defects report on time on 6 June 2017.
Leave was granted for the parties to be legally represented. So far as the Appeal Panel is aware, each party was legally represented from the outset. Certainly both counsel and solicitors appeared on hearing of this appeal and at the primary procedural hearing that generated this appeal.
The developer was 10 days late in complying with a direction in respect of filing and serving its expert report on quantum, on 16 (not 6) June 2017. However, there had finally been a joint site experts' meeting on 14 June 2017 at which the OC's expert attended and which narrowed the defects in dispute. Not having received any expert report from the OC on quantum to which in the ordinary course its expert report would have been a response, the developer's expert report quantified only the alleged defects that it did not dispute were defects.
On about 11 July 2017 the parties were notified that the matter had been set down for hearing on 20 September 2017. That notification was 16 days before the directed extended date for the OC's expert report. There was nearly 2 months between the extended compliance date for the OC's expert report and the hearing date.
There was evidence that the OC was still seeking from owners a specification of any alleged defects on 1 August 2017 and that a new expert had been engaged for inspection of some of the strata scheme units in the first part of August 2017, when the latest time for the delayed quantum report had already passed and the matter was set down for hearing in about 6 weeks' time. On becoming aware on 3 August 2017 of that activity, the developer's solicitor notified the OC's solicitor that the developer would oppose filing and service of any further evidence. That position was repeated on 17 August 2017.
The parties conducted settlement negotiations throughout the process of preparation for hearing and advised the Tribunal on several occasions that they had some confidence in a successful conclusion to negotiations, but that did not occur. The content of such negotiations remains privileged. Both parties accepted that the negotiations were not a reason for non-compliance with directions or to slow or cease case preparation.
There was no explanation before the primary member of the reasons for the OC's non-compliance from the outset with the Tribunal's procedural requirements and directions concerning its expert report on quantum, except for a limited explanation in relation to how the report emerged when it did, which is discussed below. There was no improvement on that position, to the extent it would be admissible, before us.
On 17 August 2017 the OC's solicitor wrote to the Tribunal seeking a re-listing to adjourn or to consider the transfer of the proceedings, without supporting evidence. The application for re-listing was rejected by the Tribunal on the papers in the absence of supporting reasons and evidence.
On 21 August 2017 the OC's solicitor forwarded to the Tribunal a communication to the developer's solicitor seeking a consent vacation of the hearing, extending time for the OC's expert report to 13 September 2017, giving the developer until 13 October 2017 to respond to the report and contemplating a transfer application in the event that the quantum exceeded the Tribunal's jurisdictional limit. The developer's solicitor, consistent with the earlier-stated position, communicated its rejection of the proposal on 23 August 2017, leading to a listing on 15 September 2017.
On 14 September 2017 the OC served an expert report dated 13 September 2017. The content of that report was not previously disclosed even in outline, nor was there any explanation of the gross delay in obtaining the report (that is, why it was not obtained at the proper time), including after the last compliance date of 27 July 2017 and after it was foreshadowed over 3 weeks earlier on 21 August 2017 (itself nearly a month after the last compliance date).
The OC's solicitor's affidavit of 23 August 2017 in support of the renewed interim application disclosed no more than during a meeting on 17 August 2017 the OC's expert "advised me that in considering the [developer's] Quantum Report, and in re-inspecting the units, he found that the Quantum [sic] put forward by the Respondent was inadequate, and the actual quantum for the defects in this matter may have the possibility to exceed $500,000 once his investigations are complete" (emphasis added).
The reference to the developer's expert report made no reference to or acknowledgement of the fact that the usual order of reports was reversed. The reference to "re-inspection" indicated a prior occasion of inspection. No detail of the date and nature of that inspection was given.
The adjournment application, which was heard only 5 days before the allocated hearing date, became a formalised application to transfer only upon service of the expert report. No further explanation by way of a further affidavit was offered as to the date of earlier inspection, why that had not produced a more prompt report and (if necessary) a transfer application at an earlier date or an original filing in another jurisdiction where the report was within the monetary limit, why the OC's expert report was so delayed altogether, why it took a further 3 weeks to be served once the adjournment application was foreshadowed, and why it had grown in that 3 weeks to a definite position greatly in excess (by about $300,000) of the Tribunal's jurisdictional limit. There was no application to amend the OC's claim: cp OC SP 70030 v Decon Australia PL [2014] NSWSC 347 at [60].
In those circumstances it is not surprising that the primary member found at [25] and [38] the following:
[25] In my view, the applicant has not conducted the proceedings before the Tribunal in a satisfactory manner.
[38] The failure to obtain the quantum evidence in accordance with Tribunal orders remains unsatisfactorily explained. In the absence of both the quantum evidence and a satisfactory explanation for its failure to be provided by 27 July, I consider it unlikely that the Tribunal would have adjourned the hearing, even if such an order had been requested by consent.
This conclusion about adjournment was supported by authority: see, eg, O'Neill v T&I Engines PL [2015] NSWCATAP 77 at [20]-[23].
Nevertheless, the primary member at [28]-[29] came to the following conclusion:
[28] However, although the applicant has without satisfactory explanation failed to comply with orders made by the Tribunal, its delinquency in this regard is not a sufficient reason to refuse to transfer the proceedings. Expert evidence is now available which supports a claim exceeding the Tribunal's jurisdictional limit. I do not have to be satisfied that the applicant will be awarded the sum specified in [the late expert] report in order to be satisfied that this is the case. In my view, [the late expert] report provides a sufficient basis for an order transferring the proceedings.
[29] As noted above, the applicant commenced proceedings on the last day of the statutory warranty period. This means that it cannot withdraw the proceedings in the Tribunal and commence fresh proceedings in the Supreme Court. While I accept that there is prejudice to the respondent, which has complied with Tribunal orders, in now being faced with proceedings in the Supreme Court, I consider that the any [sic] prejudice to the respondent arising from the transfer of the proceedings does not exceed the prejudice that the applicant would suffer if it were unable to pursue a claim for damages in the sum estimated by its expert witness.
With great respect we consider that the primary member's exercise of discretion miscarried in this instance so as to constitute an error of law.
It is clear from the views expressed at [38] and [28] quoted above that the primary member would have come to a different view if the matter had been treated as an adjournment application for a report served this late that particularised the amount of the claim as under $500,000. That conclusion was strongly supported by the primary member's sensible findings at [25]-[27] about the conduct by the OC of the proceedings and the interlocutory application which are paraphrased in the description already given in these reasons. None of those findings was challenged on appeal by the OC.
We respectfully agree with the primary member's views that an adjournment application would have failed for a grossly-late and central expert report within jurisdictional limit, leaving the OC, as the primary member noted in her orders, with the option of no expert evidence or reliance upon the existing expert evidence filed by the developer.
The fact that the late report took the amount of the claim over $500,000 was not of itself a reason for permitting a transfer. Rather, transfer (and vacation of the Tribunal hearing date) was a consequence if the grossly-late report was permitted to be relied upon.
Further, the effect of a transfer on the conduct of the proceedings was the same as a successful application to adjourn and vacate the hearing by reason of the grossly-late expert report being permitted to be relied upon. If the expert report had been within jurisdictional limit then adjournment (and vacation of the then-current hearing date) was the consequence if the report was permitted to be relied upon.
Accordingly, the test that had to be satisfied by the OC was the same whether or not the report was within the Tribunal's jurisdictional limit: - would the grossly-late expert report be permitted to be relied upon. The outcome - in terms of adjournment and vacation or transfer and vacation - was different according to the amount of the expert report sought to be relied upon, but the consequence of each outcome for the proceedings, for the Tribunal, for other litigants and for the other party to these proceedings was immediately the same.
The primary member did not indicate in [28]-[29] or elsewhere why she came to a different conclusion on transfer vacation from what would have been the likely conclusion on adjournment and vacation, given that the test to be satisfied leading to each outcome was the same.
In particular, the primary member did not say why the guiding principle in CATA s 36 quoted above was given effect to with a different balance in relation to the very late report in the two different outcomes when the same test leading to those outcomes was involved.
Accordingly, the primary decision did not articulate an essential component of the reasoning leading to the conclusion reached, which is an error of law .
We also consider that, at [28]-[29] of the primary reasons, there was a further error of law. There was inadequate reasoned articulation of how the guiding principle led to the outcome at all in the circumstances of these proceedings.
Thus, at [25]-[27] and [38], also implicitly acknowledged at [28]-[29], the primary member correctly articulated the matters which militated against letting in the very late expert report. In summary, they were: the essentiality to the OC's case of proving the nature and amount of liability for the OC to succeed; the absence of compliance at any stage, before or during the proceedings, with procedural mandates; the severity of the non-compliance; the absence of any explanation for all of those matters except for the last which was a wholly-inadequate explanation: cp Kelly v Mina [2014] NSWCA 9.
Against the foregoing in the balance the primary decision at [28]-[29] simply referred to the current availability of expert evidence and its importance to the OC's case. At the least it should have been explained as to why that trumped in the balance the other factors, particularly when it was clear that the same two factors would not have trumped a refusal of an application to adjourn and vacate the imminent hearing date. The absence of explanation is an error of law.
CATA s 36(1) reflects, in the guiding principle, as do other statutes such as s 56 of the Civil Procedure Act 2005 (NSW), the balance in the case law: see, for example, AON Risk Services Australia Ltd v ANU (2009) 239 CLR 175 at [90]-[103] which includes discussion as to why costs are not a cure for all prejudice and that the balancing exercise goes beyond prejudice. It is vital that the reasons for the balance leading to a particular outcome are explained when the factors are in tension between allowing a party an opportunity (however grossly dilatory it has been) to present its case and the interests of the other parties and other litigants in management of resources.
The OC submitted that "just, quick and cheap" in s 36(1) is in effect trumped by or subservient to resolution of the "real issues" in the proceedings. Such could not be the case. The two phrases are directed to different ends. The latter states the object of elucidating and determining what genuinely is in dispute between the parties. The former states the process by which that elucidation and determination occurs. If that was not the distinction then (as the OC effectively submitted) it would always be "just" to permit whatever impacted on the merits of the case because that concerned (subject to determination of relevance and other evidentiary matters at hearing) the "real issues".
The developer submitted in effect that the wrong test was applied because in effect the primary decision at [29] was a balancing of prejudice rather than a having regard to the guiding principle, and that such was an error of law. We agree. That appears to us to be clear from the focus of what is said at [29] in the primary reasons and from what we have already said in relation to the test expounded in Aon.
Related to this submission was the developer's submission that in the extreme circumstances of this case the exercise of discretion, on the correct test of the guiding principle as expounded in case law and on the test applied by the primary member, was outside the range of reasonable outcomes and was an error of law.
Again, we agree. The extreme lateness and history of non-compliance on matters essential to the OC's case, that were unchallenged findings of fact and have been summarised above, placed outside the range of reasonable outcome an exercise of discretion in favour of letting in the very late report which would produce transfer and vacation because of excess of jurisdiction. We did not obtain in terms a satisfactory answer from the OC's counsel (in response to the developer's counsel's submission) as to when, if this exercise of discretion was in the range of reasonable outcomes, there would be a circumstance (except, possibly, during the actual hearing as in AON itself) when the balance would be in favour of rejecting the report. That is not a criticism of the OC's counsel who put her client's difficult case with customary skill, as did her opponent for the developer. Rather, it is an implicit acknowledgement that no circumstance could be pointed to.
The OC relied upon Dyldam Developments PL v Mewing [2017] NSWCATAP 170 at [32]-[37]. As those cited paragraphs make clear, Dyldam involved very different facts. The matter had not been set down for hearing. There was no indication that the foreshadowed amendment which would necessitate transfer had been the subject of earlier gross unexplained delay as in the present case. The case determined that there did not need to be a formal amendment of the claim before the Tribunal could consider transfer and was consistent with the decision in Decon at [68], [74]-[77].
Leave is required to raise a question of law in relation to an appeal from a primary procedural decision: CATA s 80(2)(a). We consider that the errors of law, which involve important principles and their application in this context of home building disputes, clearly warrant such a grant of leave, all the more so when (as we have found) there is a clear error of law which works injustice to the developer and contains a mistaken basis for exercise of discretion leading to an unreasonable factual conclusion: Collins v Urban [2014] NSWCATAP 17 at [84].
It was said by the OC in effect that, even if the above error was corrected, the same conclusion would have been reached because the balance given effect to in relation to the grossly-late report that resulted in the transfer order was the correct balance. In effect, this meant that what the primary member said was the likely opposite outcome on an adjournment application was wrong.
This is more relevant to an issue of grant of leave to deal with the exercise of discretion as an error of (ultimate) fact, where the discretion to grant leave is available only if we are satisfied that the appellant may have suffered a substantial miscarriage of justice because the finding of fact was, relevantly to the present case, against the weight of evidence: CATA s 80(2)(b), Sch 4 para 12(1)(b); Collins v Urban at [65]-[79]. Having come to the conclusion we have that there were errors of law justifying the allowing of the appeal, it is unnecessary to determine this question.
The same issue however arises on what happens now that we have found appellable errors to be established and the grounds for a grant of leave to appeal from a procedural decision.
Under CATA s 81 we have power to substitute our decision for that of the primary member and for that purpose to exercise the functions conferred on the Tribunal at first instance. We think that appropriate to do in the present case. It is the most economical and expeditious means of progressing the proceedings to a final hearing and resolution that also accords with justice. Remission for re-exercise of discretion could simply prolong the process with further procedural appeals. The material to exercise the discretion is before us.
It will be apparent from what has been said earlier that we disagree with the OC submission on the same outcome if there was an exercise of discretion fully justified and on the appropriate test.
In our view the factors summarised earlier, and found as unchallenged facts by the primary member, lead to the same exercise of discretion as the primary member indicated would have been the outcome on an adjournment and vacation application if the expert report had analysed defects and quantified them at less than $500,000. The addition of extra defects and amounts does not of itself change any of those unchallenged facts and the conclusion from them.
In our view the extreme unexplained lateness of an expert report which should have been obtained prior to and for the purpose of launching proceedings means that the report should not be permitted to be placed into evidence on final hearing. The fact that there has been delay by reason of the primary decision and this appeal does not change that situation. There has been no occasion during that process of resistance and challenge for the developer to be required to spend the time, effort and cost to meet the report.
Once the report is excluded from evidence on final hearing there is no impediment to the matter being permitted to stay in the Tribunal and to proceed as rapidly as possible to final hearing on the existing evidence. This is the closest outcome to what would have been the case if the primary decision had been as we have found it should have been and the hearing had proceeded on 20 September 2017.
None of the foregoing changes the costs orders made by the primary member on 17 September 2017 to the extent they remain relevant by reason of there being no transfer. There was no challenge on appeal to those costs orders. Indeed, the OC relied upon the presence of those costs orders in defending the primary decision, saying they had cured any prejudice. We have earlier found that was not the correct test. To the extent the OC relied upon them as weighting the balance under the guiding principle and established case law, we disagree. Costs thrown away by reason of a vacated hearing are insufficient compensation for a grant of leave which would transform the nature, time and expense of litigation which has proceeded to date on a dramatically different basis for preparation.
Accordingly, the OC will remain liable under the costs order made on 18 September 2017 that it pay the developer's costs thrown away by of the vacated hearing on 20 September 2017, as agreed or assessed, on an indemnity basis.
We did consider whether or not it was the appropriate balance in exercise of discretion to return the matter for a directions hearing at which applications could be made by the OC to, say, introduce a revised expert report that limited the claim to the Tribunal's jurisdiction or waived the existing expert report to the extent it took the amount of the claim above the Tribunal's jurisdiction, the consent of the OC to those courses being the price for the grant of leave.
We have determined that such would not be an appropriate balance in exercise of discretion. It would in effect lead to the same outcome as if that had been sought by way of adjournment and vacation on 15 September 2017 (the original form of the application) which we have determined was not appropriate for the reasons already given.
If we had come to the opposing view on that alternative outcome, we would have considered it appropriate, as part of the exercise of discretion, to grant leave to the developer to have the costs order that remains relevant from 18 September 2017 and the costs order from this appeal assessed forthwith, as part of the price paid by the OC for the indulgence of further time.
[2]
Orders
1. Appeal allowed.
2. Refuse leave for the applicant (the respondent to this appeal) to rely upon the expert report of Mr Roderick Leigh Lemon dated 13 September 2017.
3. Order that the proceedings be remitted to the Consumer and Commercial Division and listed for an expedited hearing date.
4. Order that, in addition to the costs order made by the primary member that remains relevant (being order 3 made on 18 September 2017 that the applicant is to pay the respondent's costs thrown away of the vacated hearing on 20 September 2017, as agreed or assessed, on an indemnity basis), the respondent to the appeal is to pay the appellant's costs of the appeal as agreed or assessed, on the ordinary basis.
[3]
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: 06 December 2017