Rehman v F & F Smart Homes Pty Ltd - [2024] NSWCATAP 9 - NSWCATAP 2023 case summary — Zoe

NSWNSWCATAP

Rehman v F & F Smart Homes Pty Ltd

[2024] NSWCATAP 9

NCAT Appeal Panel|2023-12-18

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At a glance

Source facts

Court

NCAT Appeal Panel

Decision date

2023-12-18

Catchwords

3 All ER 333
Perpetual Trustee Co Ltd v Nguyen [2015] NSWCATAP 264 Northern Territory v Sangare [2019] HCA 25

Source

Original judgment source is linked above.

Catchwords

3 All ER 333Perpetual Trustee Co Ltd v Nguyen [2015] NSWCATAP 264 Northern Territory v Sangare [2019] HCA 25

Judgment (30 paragraphs)

[1]

House v The King (1936) 55 CLR 499 Jackson v NSW Land and Housing Corporation [2014] NSWCATAP 22 Jones v Bradley (No 2) [2003] NSWCA 258 Jones v Sutton (No 2) [2005] NSWCA 203 Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 Miwa Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344 Nguyen v Perpetual Trustee Co Ltd; Perpetual Trustee Co Ltd v Nguyen [2015] NSWCATAP 264 Northern Territory v Sangare [2019] HCA 25; (2019) 265 CLR 164 at [24] Nu Line Construction Group Pty Ltd v Fowler [2012] NSWSC 816 Old v McInnes and Hodgkinson [2011] NSWCA 410 Oshlack Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 Prendergast v Western Murray Irrigation Ltd [2014] NSWCATAP 69 Rekrut and Scott v Champion Home Sales Pty Ltd [2018] NSWCATAP 97 Rickard Constructions v Rickard Hails Moretti [2005] NSWSC 481 Roberts v Rodier [2006] NSWSC 1084 SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 Thompson v Chapman [2016] NSWCATAP 6 Whitney v Dream Developments Pty Ltd [2013] NSWCA 188; 84 NSWLR 311 Williams v Lewer [1974] 2 NSWLR 91 Wright v Foresight Constructions Pty Ltd [2011] NSWCA 327 Texts Cited: None Cited Category: Principal judgment Parties: Abdul Mateen Rehman, Appellant F & F Smart Homes Pty Ltd, Respondent Representation: Counsel: Appellant: S Jayasuriya Respondent: W Calokerinos

[2]

[3]

Background (including procedural history)

This is an internal appeal from a decision regarding costs in the Consumer and Commercial Division of the Tribunal (Tribunal) made on 14 April 2023 (Costs Decision) in the Tribunal proceeding constituted by file no. HB 22/00516 (Proceeding).
For the reasons given in the Costs Decision, the Tribunal determined that each party is to bear their own costs of the Proceeding, i.e., the Tribunal made no order as to the costs of the Proceeding.
By application lodged with the Tribunal on 6 January 2022, Abdul Meteen Rehman (Owner) as the applicant for orders under the Home Building Act 1989 NSW (HB Act), brought the Proceeding against F & F Smart Homes Pty Ltd (Builder) as the respondent. The Owner had contracted with the Builder for the Builder to construct a new residential duplex at the Owner's Schofields NSW property, as well as a new swimming pool.
In the Proceeding, the Owner claimed damages against the Builder for defective work, incomplete work, and delay.
On 28 June 2022, a hearing of the Proceeding was adjourned, and the costs of the day were reserved.
On 16 January 2023, after the hearing of the Proceeding on 21 December 2022, the Tribunal made orders under s 48O(1) of the HB Act (Primary Decision) for the Builder to engage another licensed builder to carry out residential building work at the Owner's Schofields property, within a defined Scope of Work as set out in Schedule 1 to the Primary Decision (Work Order), and to pay the Owner the sum of $26,250.64 (Money Order) forthwith.
For the Work Order, the Scope of Work detailed up to 116 items of defective work in various locations of the Unit 1 and Unit 2 dwellings of the duplex, all cross referenced to the joint experts' report which had been prepared for the hearing of the Proceeding. The Work was subject to various conditions as put in Schedule 1 of the Primary Decision including for the Work to be completed by 30 April 2023 or such later date as may be agreed by the Builder and the Owner, and for the Work to be inspected by the Owner's expert, Mr Bournelis, at the Builder's cost.
As elucidated upon by the Senior Member in the Tribunal's Reasons for the Primary Decision, the Money Order had three (3) components to it:
$1,412.25 - in the context of the Owner's claim for defective work, which was generally the subject of the Work Order, this was the amount awarded by way of a cost saving arising from the Builder's use of lower-rated insulation batts,
$21,480.96 - this was the amount awarded in the context of the claim for incomplete work, which related to the cost of the swimming pool exceeding $60,000, and
$3,357.43 - this was the balance sum in the Owner's claim for damages for delay, such claim being assessed by the Tribunal as warranting an amount of $2,663.14 for the Owner's loss of rent in respect of Unit 1 during the period from 10 October 2021 to 5 November 2021, and an amount of $2,694.29 for the Owner's loss of rent in respect of Unit 2 during the period from 10 October 2021 to 25 November 2021, both amounts totalling $5,357.43, less an amount of $2,000 already paid by the Builder.
The Primary Decision is not the subject of an appeal. However, procedural directions were made by the Tribunal on 16 January 2023 (Primary Decision, orders 3 - 6) for written submissions as to the issue of the costs of the Proceeding. Following receipt of the Primary Decision, the parties then filed and served submissions as to costs in accordance with those directions. The Owner argued that he was the successful party, that costs 'followed the event', and that he should have an order for the Builder to pay his costs of the Proceeding on the ordinary basis as agreed or as assessed.

[4]

The Tribunal's Costs Decision

The Costs Decision was a decision made on the papers (i.e., without a further hearing, and with appearances of the parties not required), pursuant to the Tribunal's authority in s 50(2) of the Civil and Administrative Tribunal Act 2013 NSW (NCAT Act) - see order 1 made on 14 April 2023. The Senior Member found that each party should bear their own costs of the Proceeding - see order 2 made on 14 April 2023.
The Tribunal's "primary reason" (Costs Decision at [48]) as to why it would not make any order for costs of the Proceeding, was based upon a finding that the Owner had "unreasonably rejected" an offer of settlement of the Builder to the Owner (Offer of Compromise) which had been made prior to the commencement of the Proceeding, on 1 November 2021, and a further finding that the Owner had thereby failed, within the meaning of s 18BA(1)(a) of the HB Act, to mitigate his loss: Costs Decision at [42].
Nevertheless, before making the finding at [48] of the Tribunal's Reasons for the Costs Decision, the "primary reason" in the context of the Offer of Compromise, the Senior Member also said: [43] Had the owner accepted the builder 1 November 2021 offer in relation to his defects claim, all that would have remained would have been (1) the additional cost of the swimming pool above $60,000, which would have no doubt been less at that time, (2) perhaps a small claim in relation to insulation batts, plus (3) two claims for delay which only entitled the owner to a small amount: $3,357.43 because the builder had already paid $2,000 towards that claim. [44] It can be said that the owner would have still had to commence proceedings in relation to those matters, which gave rise to the money order. However, the costs of such proceedings would only have been a fraction of the costs which the owner has, in fact, incurred. [45] Further, the Tribunal is satisfied that the builder is entitled to an order that the owner pay the costs thrown away by reason of the adjournment of the hearing on on (sic) 28 June 2022 since the service of evidence at 1:45am on the day of an intended hearing cannot be overlooked. The orders made on that occasion included reserving the question of costs. There would plainly have been costs incurred by the builder in preparing for that hearing. Such costs of preparation would have been incurred again in preparing for the hearing on 21 December 2022. As a result, there were undoubtedly cost thrown away. [46] Plainly, if no separate costs order was made in relation to the aborted 28 June 2022 hearing, the costs would include ay (sic) reserved costs. However, it does not follow that the costs of the adjournment caused by the owner should be overlooked and the consequences for the builder be ignored. Had the question of cost been considered on 28 June 2022, the owner would not have been able to resist an order that the owner pay the builder's costs thrown away by reason of the adjournment of the hearing on that day. [47] Neither of those two aspects, a money order claim by the owner and the builder's cost thrown away due to the adjournment, can be quantified with precision but the Tribunal considers the appropriate course is to treat those two matters as cancelling each other out, rather than making two costs orders which, given the history of this litigation, would be likely to require assessment.
Apart from the findings made for the "primary reason" at [48], the Tribunal also referred to "further matters" bearing upon the reasons for order 2 of the Costs Decision at [49] - [55], being the Owner's conduct of the Proceeding, and proportionality. These are also matters adverted to in [43] - [47] of the Costs Decision.

[5]

Leave to Appeal Out of Time

As indicated, the Costs Decision was handed down on 14 April 2023. The Notice of Appeal was filed by the Owner, on 13 September 2023. The Notice of Appeal, therefore, was filed out of time: see Rule 25(4)(c) of the Civil and Administrative Tribunal Rules 2014 NSW (NCAT Rules).
In support of his application, pursuant to s 41 of the NCAT Act, to extend time for the lodgement of the Notice of Appeal, the Owner set out the circumstances as to why the appeal was filed out of time, in Annexure C to the Notice of Appeal, and in this respect, the further procedural history of the Proceeding (following the Costs Decision being published) is pertinent.
In short, the Tribunal Registry did not provide the Senior Member with the submissions in reply that had been filed by the Owner in relation to costs, such that the Costs Decision was handed down without those submissions in reply having been considered. That procedural irregularity did not come to light until after the Costs Decision had been published.
In those circumstances, the Senior Member allocated further hearing time for submissions from the parties as to what should be done about the procedural irregularity and especially, whether order 2 of the Costs Decision should be set aside.
The further hearing before the Senior Member occurred on 21 August 2023. The Tribunal dismissed the Owner's application to set aside order 2 of the Costs Decision and published written reasons on 29 August 2023 (Set Aside Decision). The Senior Member determined that his decision as to the costs of the Proceeding on 14 April 2023 would not have been any different had the relevant Owner's submissions in reply been considered at the time of the Costs Decision: Set Aside Decision at [43] - [44].
The Set Aside Decision is not the subject of appeal.
The Builder accepted that the Appeal Panel should extend time for lodging an appeal by the Owner from the Costs Decision. We agree.
In the exercise of the Appeal Panel's discretion in s 41 of the NCAT Act, and applying the well-known principles in Jackson v NSW Land and Housing Corporation [2014] NSWCATAP 22, we find that strict compliance with the NCAT Rules will work an injustice upon the Owner, that the grounds of appeal are fairly arguable and have good prospects of success, and that (as the Builder's acceptance that there ought to be an extension of time, reflects) no unfair prejudice will be suffered by the Builder. There is no doubt that it would have been inappropriate and impractical for the Owner to appeal the Costs Decision before the Owner's application to set aside order 2 made on 14 April 2023 had taken its course, and the Tribunal had handed down the Set Aside Decision on 29 August 2023. We are satisfied that the Owner acted promptly to lodge his appeal, after the Set Aside Decision was handed down.
We find that an order granting an extension of time pursuant to s 41 of the NCAT Act, should be made.

[6]

The Grounds of Appeal

The Owner's grounds of appeal are set out in Annexure A to his Notice of Appeal filed 13 September 2023.
In summary, the grounds of appeal, are as follows: 1. Ground One: In holding at [40] and [48] of the Costs Decision that the Owner acted unreasonably in not accepting the Builder's Offer of Compromise prior to bringing the Proceeding to the Tribunal, the Tribunal made an error on a question of law by failing to consider relevant matters, as stated in Grounds 1a to 1f (inclusive), regarding the unreasonableness to the Owner of the Builder's Offer. Grounds 1a to 1f are: 1. The Owner's prospects of success as at the date of the Offer of Compromise, 2. The fact the Offer of Compromise did not explicitly state that the offer was being made in Calderbank terms, 3. The fact the Offer of Compromise did not state that the Builder reserved its right to rely on the offer on the question of costs in the event the Owner rejected it, 4. The fact that the Offer of Compromise did not state the costs advantage sought to be obtained by the Builder in the event the Owner rejected it, 5. The fact the Offer of Compromise required the Owner to pay the Builder an extra $20,000 for the construction of a swimming pool, in circumstances where the Builder had an existing contractual obligation to construct the swimming pool, 6. The fact the terms of the Offer of Compromise were not sufficiently clear, precise, and/or certain, in circumstances where no independent building inspector was proposed by the Builder. 1. Ground Two: The Tribunal made an error on a question of law because it did not consider a relevant matter, namely, that the Owner achieved a better outcome in the Proceeding than what was offered to him by the Builder in the Offer of Compromise. 2. Ground Three: The Tribunal made an error on a question of law by applying the wrong legal principle in its finding that the Owner had failed to mitigate his loss (Costs Decision, at [42]) in not accepting the Offer of Compromise (Failure to Mitigate Finding). The error arose in circumstances where it was the Builder who had the onus to raise the contention underlying the Failure to Mitigate Finding, and to establish it in evidence, but did not do so. 3. Ground Four: The Tribunal made an error on a question of law by applying the wrong principles of law regarding mitigation of loss, to make the Failure to Mitigate Finding to determine whether (or not) the Owner should have an order for his costs of the Proceeding. 4. Ground Five: In holding that the Owner's estimated costs of the Proceeding (Costs Decision, at [20]) were not "proportionate" to the subject matter of the Proceeding (Costs Decision, at [51]), the Tribunal made an error on a question of law because it did not consider the relevant matter of comparison between the legal costs of the Proceeding and the remedy sought by the Owner. 5. Ground Six: After observing that the "goal of proportionality was not achieved", and that "it does not necessarily follow that parties who run up substantial costs will necessarily be entitled to recover those costs" (Costs Decision, at [54]), the Tribunal made an error on a question of law by finding that, by virtue of the parties' legal costs being disproportionate, there were "special circumstances" which warranted not awarding costs.

[7]

The Owner's Appeal Documents

The Owner filed an affidavit of his solicitor, Sean Thomas Greenwood (Mr Greenwood) sworn on 23 October 2023 with Exhibit STG - 2 (361 pages), comprising a bundle of the material before the Tribunal for the Proceeding. The Exhibit included a transcript of the hearing on 28 June 2022 (Adjourned Hearing Transcript).
Although the Builder objected to the Adjourned Hearing Transcript being read by the Appeal Panel, on the basis that it was incomplete, and it referred to informal 'without prejudice' discussion between the parties' legal representatives and the presiding member of the Tribunal, we were satisfied that the Adjourned Hearing Transcript was material to our determination of the grounds of appeal, as the Senior Member had referred to the parties' conduct of the Proceeding including for the hearing on 28 June 2022, in his Costs Decision at [21] - [23], [34], and [45] - [46].
In fact, we read all the material in Exhibit STG - 2 for the appeal, disallowing the Builder's objections to pages 79 to 122 (inclusive), which were the Builder's documents comprising correspondence and an affidavit of the Builder's solicitor (sworn on 16 June 2022) for the hearing that was adjourned on 28 June 2022. We found that those documents constituted evidence "received by the Tribunal at first instance" (NCAT Act, s 80(3)) upon which the Owner is permitted to rely upon in the appeal. We further found that the documents are relevant to the Costs Decision and relevant at the time of that Decision. The affidavit and letter acknowledge the Builder's responsibility for delays in complying with the initial timetabling orders which led to the hearing. We accordingly allowed the documents to be read in the appeal as we were aware that these matters are relevant considerations if we come to redetermine the question of costs of the Proceeding. Moreover, in our determination, there was no real prejudice to the Builder in these documents being read in the appeal - they are the Builder's own documents and in the case of the affidavit, comprise the Builder's sworn evidence to the Tribunal.
The Owner also filed written submissions for the appeal dated 26 October 2023, and written submissions in reply dated 8 December 2023. The Owner's counsel amplified those submissions in oral submissions during the hearing of the appeal.

[9]

Legal principles governing the appeal of a costs' decision.

Section 80(2)(b) of the NCAT Act states that an appeal may be made from "decisions", including "ancillary decisions", of the Tribunal at first instance, as of right on any question of law, or with leave of the Appeal Panel on any other grounds.
Pertinently, for this appeal from the Costs Decision in the Proceeding, an "ancillary decision" of the Tribunal is defined to include a decision concerning the awarding of costs in proceedings: s 4(1), NCAT Act.
In Prendergast v Western Murray Irrigation Ltd [2014] NSWCATAP 69 at [13], without listing exhaustively possible questions of law, the Appeal Panel considered the requirements for establishing a question of law giving rise to an appeal as of right. These include, but are not limited to: 1. whether the Tribunal provided adequate reasons, 2. whether the Tribunal identified the wrong issue or asked the wrong question, 3. whether it applied a wrong principle of law, 4. whether there was a failure to afford procedural fairness, 5. whether the Tribunal failed to take into account a relevant (that is, a mandatory) consideration, 6. whether it took into account an irrelevant consideration, 7. whether there was no evidence to support a finding of fact, and 8. whether the decision was legally unreasonable.
Because a decision as to costs involves the exercise of a discretion, an appellant must demonstrate that the Tribunal erred in the sense articulated by the High Court in House v R [1936] HCA 40; (1936) 55 CLR 499 (House v King), at 504-505 per Dixon, Evatt, and McTiernan JJ: 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 at first instance.

[11]

The Offer of Compromise

As was referred to in the Tribunal's Costs Decision, the Offer of Compromise was in the form of a letter dated 1 November 2021 from the Builder's solicitors to the Owner's solicitors. The letter was marked 'Without Prejudice Save as to Costs', but notwithstanding the marking, the letter did not state that any of the offers therein were made in accordance with the principles in Calderbank v Calderbank (1975) 3 All ER 333 (Calderbank).
In fact, in determining that the Offer of Compromise had been unreasonably rejected by the Owner (Costs Decision at [37] - [44]), the Senior Member focussed upon a part only of the letter of 1 November 2021, as follows: Defects List In regard to the defects list, our client claims that he has completed all the works in accordance with the contract and in a workmanlike manner. However, if your client still insists on the defects list, he should provide us documentary and photographic evidence of each defect claimed. Considering the long list of defects, we should once again propose that our respective offices should immediately appoint, by agreement, a building inspector who can prepare a building report for our respective clients. Should the building report highlight any defects, our client would agree to fix those defects. Please note, our client is ready to apply for an Occupation Certificate and handover the project to your client at any time subject to payment of our client's final invoice by your client.
The letter addressed other matters such as Variations and Pool Works. While the Senior Member recognised that the Owner would still have to commence proceedings in relation to the other matters, he found the Owner's non-acceptance of what the Senior Member had referred to as an "offer to remedy any defects found by a building inspector agreed by the parties" (Costs Decision, at [37]), was unreasonable, and warranted a departure from the usual order that costs 'follow the event'. This was because in the Senior Member's determination, the costs of any proceedings brought by the Owner on the other issues "would only have been a fraction of the costs which the Owner has, in fact, incurred" (Costs Decision, at [44]).

[12]

What are the relevant principles governing the Owner's application for his costs of the proceeding?

The starting point in any application for costs is that parties to proceedings in the Tribunal are to pay their own costs: see s 60(1) within Part 4 'Practice and Procedure' of the NCAT Act. Subsection 60(2) provides costs are awarded only if the Tribunal is satisfied that there are: "special circumstances warranting an award of costs". Subsections 60(3)(a) - (g) of the NCAT Act then set out various matters which the Tribunal may have regard to in determining whether there are special circumstances warranting an award of costs.
Each of the provisions of Part 4 of the NCAT Act is subject to enabling legislation and the "procedural rules": NCAT Act, s 35. As defined in s 4 (1) of the NCAT Act, "procedural rules" means the NCAT Rules.
Rule 38 of the NCAT Rules relates to costs in the Consumer and Commercial Division. Rule 38(2) says that despite s 60 of the NCAT Act the Tribunal may award costs in the absence of special circumstances warranting such an award if the amount claimed is more than $10,000.00 but not more than $30,000.00 and the Tribunal has made an order under cl 10(2) of Sch4 of the NCAT Act in relation to the proceedings, or the amount claimed or in dispute in the proceedings is more than $30,000.00.
Accordingly, the usual position under s 60 of the NCAT Act is modified by r 38 of the NCAT Rules and the Tribunal may award costs without "special circumstances".
The discretion to award costs generally is broad and unfettered, save that it must be exercised on a principled and judicial basis, avoiding arbitrariness and serving the need for consistency: see, for example, Northern Territory v Sangare [2019] HCA 25; (2019) 265 CLR 164 at [24], and also "according to rules of reason and justice, not according to private opinion … or even benevolence … or sympathy": Williams v Lewer [1974] 2 NSWLR 91 at [95]. The Tribunal's power is 'unfettered' in the manner described in Wright v Foresight Constructions Pty Ltd [2011] NSWCA 327 at [36]: A power conferred in these terms is "unfettered" in the sense that the Tribunal may make such order as it thinks appropriate, so long as it acts in accordance with the subject matter, scope, and purpose of the power. In relation to the award of costs in litigation, the accepted purpose is where costs are awarded in favour of one party, to compensate that party for the expense incurred in respect of the litigation.
An award of costs is made, not for the benefit of a losing party, but for the successful party. In Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, McHugh J (in dissent but with the tacit agreement on this issue with other members of the Court) said at [67]: The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant. Costs are not awarded to punish an unsuccessful party. The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended by, the unsuccessful party the successful party would not have incurred the expenses which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation.
The Tribunal may determine by whom and to what extent costs are to be paid and may order costs on either the ordinary basis or an indemnity basis: s 60(4) of the NCAT Act.
In the exercise of the discretion, the usual position is that costs "follow the event": see, for example, Thompson v Chapman [2016] NSWCATAP 6 at [69] - [72]; Rekrut and Scott v Champion Home Sales Pty Ltd [2018] NSWCATAP 97 (Rekrut) at [20] - [23]. However, notwithstanding whether r 38 of the NCAT Rules applies in any proceedings, the Tribunal retains the discretion as to whether (or not) it will award costs even in circumstances where costs ordinarily follow the event: see Nguyen v Perpetual Trustee Co Ltd; Perpetual Trustee Co Ltd v Nguyen [2015] NSWCATAP 264 where the Tribunal's Appeal Panel stated at [95]: While the discretion to award costs under Rule 38 is unfettered, in our view costs should generally 'follow the event' recognising however that factors may exist that militate against the successful party recovering all of its costs: Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72 at [134]. Fairness dictates that the unsuccessful party typically bears the liability for costs unless it is demonstrated that some other order is appropriate…
An offer of compromise may be in the form of a Calderbank letter. The general function of a Calderbank letter is to promote settlement of disputes, in addition to a more particular application in claims for indemnity costs: Rickard Constructions v Rickard Hails Moretti [2005] NSWSC 481, [12].
However, the making of an offer in a Calderbank letter (hereinafter referred to as a "Calderbank offer") does not automatically result in a favourable costs order, even if the ultimate judgement of the Tribunal is more favourable to the party making the offer than the terms of the offer. The party making a Calderbank offer still carries the onus of satisfying the Tribunal that it should exercise the costs' discretion in that party's favour: Jones v Bradley (No 2) [2003] NSWCA 258, [5]; Old v McInnes and Hodgkinson [2011] NSWCA 410, [22].
The Tribunal is to have regard to the relevant principles identified in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323, Miwa Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344, and Nu Line Construction Group Pty Ltd v Fowler [2012] NSWSC 816. Such principles are: 1. There must be a real and genuine element of compromise. 2. The refusal must be unreasonable. 3. The reasonableness in rejecting an offer must be considered at the time the offer is made, not with the benefit of hindsight. 4. Relevant factors in relation to whether the rejection was reasonable include the stage of the proceedings at which the offer was received, the time allowed to consider the offer, the extent of compromise offered, the offeree's prospects of success (assessed at the date of the offer), the clarity with which the terms of the offer were expressed and whether the offer foreshadowed an application for indemnity costs in the event of rejection.
A party relying on a Calderbank letter, or other offer of settlement, bears the onus of demonstrating that a rejection, or non-acceptance, of the offer by the offeree was "unreasonable" in all the circumstances of the case, and whether a rejection was unreasonable is an evaluative judgment to be made by reference to the terms of the offer and all the relevant surrounding circumstances and a finding of unreasonableness should not be made other than on clear grounds: see, for example, Abdi v Abdi (no 2) [2022] NSWSC 582 at [27] - [28].

[15]

Appeal Ground 1e

In the Offer of Compromise the Builder offered to build a swimming pool for the Owner at a cost of $20,000, in addition to the "previously quoted costs of $60,000".
In the Primary Decision, the Tribunal found that the contract price for the parties' building agreement included $60,000 for construction of a swimming pool: Primary Decision at [26], [142]. In the Offer of Compromise, the Builder was therefore offering to do the work it had contracted to do if the Owner paid it another $20,000 in addition to the $60,000 that had been allocated for the construction of the swimming pool in the building agreement. The Builder's offer to build the swimming pool was also said to be subject to the Owner agreeing to, among other things, "Obtain[ing] a development approval from the relevant council". This is despite the Builder's tender stating the Builder was required to obtain the "necessary approvals for the pool" (Exhibit STG - 2 to Mr Greenwood's affidavit, at page 33), and clause 17 of the building agreement providing for the Builder to "obtain, at its expense, all approvals required from any public authority to occupy and use the completed work" (Exhibit STG 2 to Mr Greenwood's affidavit, at page 58).
We are satisfied that the Builder's proposals concerning the swimming pool and the building defects were inherently interlinked and therefore interdependent, i.e., one could not be accepted without the other.
Clearly, the Senior Member did not consider for the Costs Decision, the fact that an essential aspect of the Offer of Compromise was that the Builder was offering to do what it was already contractually obliged to do, if it was paid an additional $20,000. The Senior Member also overlooked the fact that the Offer of Compromise also required the Owner to assume responsibility for obtaining the approval required for the construction of the swimming pool even though that was in fact, the Builder's contractual responsibility. These matters are relevant to a proper consideration of the nature and extent of the compromise offered by the Builder.
We find that in offering to do what it was contractually obliged to do, if paid more money, there was, in substance, no real and genuine compromise offered by the Builder, and that in failing to consider these matters, the Senior Member made an error on a question of law and an error in the House v King sense.

[17]

Appeal Ground 2

The offeror must do be better than it would have done if an offer of compromise had been accepted. In Bright Build (at [79] - [88]) the approach of the Appeal Panel, which we respectfully adopt, was to consider whether the offeror "beat the offer".
While in Bright Build, the Appeal Panel found that the builder in that case beat the offer in its Calderbank letter on the scope of the work to be remediated, we do not find that the Builder beat its offer in the Offer of Compromise. In fact, our finding is that it was the Owner who did better than what was offered in the Offer of Compromise in several ways.
The Owner was awarded damages in respect of incomplete work, i.e., in respect of the Builder's refusal to construct the swimming pool, rather than having to pay the Builder an extra $20,000 as provided for in the Offer of Compromise.
In relation to the building defects, the Owner achieved a better outcome than what had been offered in the Offer of Compromise, in that the work order required the work to be carried out by a licensed builder other than the Builder and with the work to be inspected by the Owner's expert at the cost of the Builder. In circumstances where, at the time of the Offer of Compromise, the parties were in serious dispute over the quality of the Builder's work and the relationship between the parties had broken down (as was acknowledged in the Primary Decision at [69]), the Owner achieved an outcome in the Proceeding that was manifestly preferable to what the Owner had been offered in the Offer of Compromise.
The Owner was also awarded damages for delay. In the Offer of Compromise, the Builder denied that the Owner had any entitlement to such damages.
Additionally, the Owner was awarded $1,412.25 for the Builder's use of lower-rated insulation batts. There was no provision for this in the Offer of Compromise.
Furthermore, given our earlier findings that aspects of the Offer of Compromise were unclear or uncertain, it is extremely difficult, if not impossible, to compare any building defects that may have been identified in a third-party building inspector's report, to the defects the subject of the Tribunal's work order of 16 January 2023, which were all cross referenced to items in the joint report prepared for the Proceeding by the parties' experts. No third-party inspector was appointed, or even proposed for the Proceeding, and no defects' report was produced. In our view, to the extent comparisons may be made between aspects of the Offer of Compromise, and the result the Owner obtained in the Proceeding, the Owner clearly did better than what had been offered to him by the Builder in the Offer of Compromise.

[20]

Generally

These Appeal Grounds may be conveniently grouped together as they both relate to the relevance of mitigation in displacing the usual rule that the successful party be awarded costs against the unsuccessful party.
As referred to, the application of the wrong principle of law is an error on a question of law, and in the context of a decision bearing upon the exercise of a costs' discretion, an error in the House v King sense.
In the Costs Decision at [42], the Tribunal found that by failing to accept the Offer of Compromise, the Owner failed to mitigate his loss. With respect, we find that the Tribunal applied the wrong legal principle. In Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 at [187[, the Court of Appeal stated the principle of mitigation of loss (citations omitted) as follows: A plaintiff who acts unreasonably in failing to minimise his loss from the defendant's breach of contract will have his damages reduced to the extent to which, had he acted reasonably, his loss would have been less. This is often misleadingly referred to as a duty to mitigate, although the plaintiff is not under a positive duty. The plaintiff does not have to show that he has fulfilled his so-called duty, and the onus is on the defendant to show that he has not and the extent to which he has not …
Section 18BA(1)(b) of the HB Act confirms that the onus of establishing a failure to mitigate loss is on the party alleging the failure.
Two aspects of the principles are relevant for present purposes - firstly, that the onus is on a defendant to show that a plaintiff has failed to mitigate and secondly, that the failure to mitigate results in the reduction of the damages to which the plaintiff would otherwise have been entitled. In our view, the Tribunal for the Costs Decision did not advert to either of those important principles.
In relation to the first principle, the Builder never raised the issue of whether the Owner failed to mitigate his loss by not accepting the Offer of Compromise. It is not in the Builder's points of defence; it is not in its submissions for the Owner's substantive application, nor is it in the Builder's submissions as to the costs of the substantive hearing. If the Builder intended to rely on the Owner's failure to mitigate, it needed to raise this during the substantive hearing, but did not do so.
In relation to the second principle, the Tribunal did not reduce the damages awarded to the Owner in the Primary Decision because of the Owner's failure to accept the Offer of Compromise. In fact, the issue of mitigation of loss was not raised by the Builder for the substantive hearing, but if it was relevant, then that is the stage of the Proceeding at which mitigation of loss was required to be considered by the Tribunal.
In the circumstances, we find that the Tribunal made an error on a question of law, or in the context of exercising its discretion as to costs, the Tribunal made an error in the House v King sense, when it decided that failure to mitigate was a factor to be considered in determining whether it would depart from the usual order as to costs.

[21]

The Builder's Appeal Submissions

The Builder's appeal submissions at [40] refer to a letter dated 18 July 2022 containing an offer of compromise which its solicitors sent to the Owner's solicitors on or about that date (Letter of 18 July 2022). It appears the submission is that by failing to accept the offer in the Letter of 18 July 2022, the Owner failed to mitigate his loss. If that be the case, the Builder's argument in respect of the letter of 18 July 2022 is affected by the same errors arising under Appeal Grounds Three and Four, that we have found for the Offer of Compromise. If the Builder wanted to rely on that argument (i.e., that the Owner failed to mitigate its loss by refusing to accept the offer in the Letter of 18 July 2022), then it needed to raise the argument at the substantive hearing so that, if established by the Builder, it could be considered by the Tribunal on the question of damages. Failure to mitigate is not relevant in determining costs' liability.
In any event, we are not persuaded that the Owner's rejection of the offer in the Letter of 18 July 2022, was unreasonable. The offer in the Letter was given on a "without admission of liability" basis and provided for rectification of a limited scope of defects, and for the rectification to be done by the Builder, who clearly still denied its work was defective. The offer in the Letter did not address the Builder's failure to construct the swimming pool, nor offer to make any payment in relation to it. It did not offer the Owner any amount in respect of damages for delay nor offer any credit for its use of lower-rated insulation materials. Applying the costs' principles referred to in our consideration of Appeal Grounds One and Two, we find the result the Owner obtained in the Primary Decision was better than what was offered by the Builder in the Letter of 18 July 2022 in all respects, and further, the Letter of 18 July 2022 was 'subject to a suitable Deed of Release", and as such, was not sufficiently clear, or is uncertain.
We are satisfied that the Owner has established Appeal Grounds Three and Four relating to Mitigation of Loss.

[25]

Appeal Ground 6

This appeal ground is that the Tribunal erred by applying the wrong legal principle in finding that, by virtue of the parties' legal costs being disproportionate, there were "special circumstances" (Costs Decision at [55]) to warrant a departure from the usual rule that the Owner (as the successful party) should be awarded his costs of the Proceeding. Pertinently, at [54] of the Costs Decision, the Senior Member stated: The Tribunal has limited ways to keep proceedings cheap, but it can send a message that it does not necessarily follow that parties who run up substantial costs will not necessarily be entitled to cover those costs. Incurring costs should not be regarded as synonymous with recovering costs.
The Tribunal was not referring to special circumstances in the sense that term is used in the NCAT Act at s 60(2); but rather in the context of a claim that exceeds $30,000, and where Rule 38 applies, as factors militating against the usual order that costs 'follow the event'.
In this case, we do not find that there was a proper basis on which to depart from the usual position that the successful party is entitled to be awarded costs on the ordinary basis as agreed or assessed. If some of the Owner's costs were unreasonably incurred, those costs would not be recoverable in the costs' assessment process. Section 76 of the Legal Profession Uniform Law Application Act 2014 NSW provides that in assessing ordered costs, a costs' assessor must determine what is a fair and reasonable amount of costs for the work concerned. As such, an award of costs to the Owner on the ordinary basis does not necessarily mean he will be entitled to recover costs up to an amount of $101,421.56. In that respect, incurring costs is not to be regarded as synonymous with recovering costs.
In the circumstances, we find that there was no principled basis for the Tribunal to depart from the usual costs' rule, to "send a message", as the Tribunal put it, about parties incurring costs in proceedings in the Tribunal.
We accept that there may be instances where the disparity between a successful party's costs and the damages awarded is a discretionary matter in considering whether a successful party should be awarded all its costs, as in fact, occurred in Jones v Sutton (No 2) [2005] NSWCA 203 (Sutton).
In Sutton, the appellant successfully appealed a District Court decision that the respondent had a defence to an action for defamation. The defamation proceeding in the District Court took 17 days. The appellant was awarded $5,000. In finding that legal costs were "massively" disproportionate to the claim (Sutton, at [52] - [53]), and that the disproportion was a relevant factor in exercising the costs' discretion, the Court of Appeal limited the costs the appellant could recover from the District Court proceedings and denied him his costs of the appeal. There were also further relevant considerations including the means the appellant could have taken to defend his reputation other than by commencing litigation (Sutton, at [67] - [68]) and that the appellant was motivated by a political agenda in bringing the proceedings (Sutton, at [69]).
However, in this case, the Tribunal did not consider any authorities relating to the circumstances in which a successful party will be denied its costs because the costs are said to be disproportionate to the claim. We do not see any similarities in this case with the Court of Appeal's decision of Sutton, but we observe, materially, that the successful party in Sutton was not denied all the costs he had incurred in the District Court proceedings - rather, the discretionary factors were considered to limit the costs he could recover in those proceedings.

[26]

Consideration of additional points raised in the Builder's Appeal Submissions

The Builder raised other matters in its submissions that did not relate, at least directly, to answering a specific ground of appeal.
Firstly, the Builder referred to the conduct of the Owner's solicitor being in breach of s 36(3) of the NCAT Act. Specifically, the Tribunal decided that the Builder would have been entitled to an order that the Owner pay the costs 'thrown away' by reason of an adjournment of the hearing of the Proceeding set down for 28 June 2022, because of the Owner's late service of evidence: Cost Decision, at [45] - [46]. The Tribunal also referred to the Owner's solicitor failing to respond to email correspondence from the Builder's solicitor in May 2022 and the solicitor's delay in providing the Owner's costs' submissions for the Proceeding: Costs Decision, at [49]. The Tribunal said that the effect of these matters was that the Builder was entitled to an order that the Owner pay the costs 'thrown away' by reason of the adjournment of the hearing on 28 June 2022: Costs Decision, at [45].
Our reading of the Adjourned Hearing Transcript in Exhibit STG - 2 at pages 126 - 155 is that in the end both sides were content for the Proceeding to be stood over. The Builder did not make or foreshadow an application for any costs 'thrown away', and the costs of the adjourned hearing on 28 June 2022 were reserved. The Owner submitted for this appeal that the Builder was also late in the service of its evidence, and that the hearing day was put to "good use" as the parties engaged in discuss settlement negotiations, including discussions to limit the issues in dispute.
The Owner further submitted that even if the Builder's position as to the Owner's conduct of the Proceeding in the lead-up to, and during, the 28 June 2022 hearing, and the Owner's solicitor's other conduct, is accepted as material to the exercise of the Tribunal's costs' discretion, the effect should be only to limit the Owner's entitlement to his costs of the Proceeding, rather than to deny the Owner his costs of the Proceeding generally. We agree with the Owner's submission.
Secondly, the Builder further submitted that, had the Offer of Compromise been accepted by the Owner, the amount in dispute would have been less than $30,000, with the result that s 60 of the NCAT Act (and not r 38 of the NCAT Rules) would have applied to the determination of the issue of costs.
We reject the Builder's further submission. The Tribunal found, correctly in our view, in the Primary Decision at [167]), that since the amount claimed or in dispute in the Proceeding exceeded $30,000, costs would be governed by r 38 and not s 60; see also the Costs Decision at [3]. These findings were not challenged on appeal. They are clearly correct.
Moreover, the Builder's own expert, Mr Sim, also found that the cost of the rectification of the defects amounted to more than $30,000. Therefore, on any view of the evidence for the Primary Decision, the Owner's claim for damages in respect of incomplete work, defective work, and delay, still amounted to more than $30,000.

[27]

Consideration of the appropriate order for costs of the Proceeding

The "primary reason" (Costs Decision, at 48]) the Tribunal decided that each party should bear their own costs was that the Owner had unreasonably rejected the Offer of Compromise. We have found that such decision was attended by errors of law and/or errors in the House v King sense.
As indicated, other reasons for the Costs Decision were also attended by errors of law and/or errors in the House v King sense.
Accordingly, we have determined the decision that the Owner would not be able to recover his costs of the Proceeding must be set aside.
In determining an internal appeal, the Appeal Panel may make such orders as it considers appropriate in light of its decision on the appeal, including substituting another decision, for the decision it has set aside: see NCAT Act, s 81(1)(d).
We are satisfied that there is sufficient material before us on this appeal to redetermine the question of the costs of the Proceeding and that doing so, is the best course because it is consistent with the Tribunal's guiding principle in s 36(1) of the NCAT Act, i.e., the just, quick, and cheap resolution of the real issues.
The amount claimed or in dispute in the Proceedings was more than $30,000. Costs therefore can be awarded even without there being "special circumstances' within s 60(2) of the NCAT Act.
As indicated in our prior consideration of the relevant costs' principles, the usual course is that costs 'follow the event'. In Hawkesbury District Health Service Limited v Chaker (No 2) [2011] NSWCA 30 at [10] - [11], the Court of Appeal said that the substance and the reality of the outcome of a proceeding is the key consideration as to who is the successful party "in the event". We are satisfied that the successful party in the overall outcome of the Proceeding was the Owner. He was awarded a substantial work order and damages against the Builder. We are further satisfied, for the reasons referred to, that he needed to bring the Proceeding to the Tribunal to achieve that outcome, and that in consequence, the Owner incurred expenses in prosecuting his claim in the Proceeding, for which an award of costs provides him with some compensation.
Considering the procedural history of the Proceeding, we are not persuaded that there are any instances of disentitling conduct by the Owner, or by his solicitor, as would warrant a departure from the usual position that costs 'follow the event'. Nor are we persuaded that the Owner's conduct of the proceeding otherwise delayed the Proceeding, or unreasonably prolonged it. Specifically, as regards the hearing on 28 June 2022, we have considered the Adjourned Hearing Transcript and the other papers for this appeal relevant to the hearing on 28 June 2022. We find that the conduct of both parties, and their legal representatives, contributed to the adjournment of the hearing on that day, and that this is not an instance where a party should be ordered to pay the costs 'thrown away' of an adjourned hearing.
In our view, the appropriate costs' consequence for the adjourned hearing on 28 June 2022, is that there be no order as to costs with the intent that each party pays its or his costs of that day.

[29]

Orders

The Appeal Panel's orders are: 1. Application for extension of time to lodge the appeal to 13 September 2023, is granted. 2. Appeal allowed. 3. Set aside order 2 made by the Tribunal on 14 April 2023 in the proceeding constituted by file no. HB 22/00516. 4. In substitution for the Tribunal's order 2 in the said proceeding, order that F & F Smart Homes Pty Ltd. is to pay Abdul Nateen Rehman's costs of the proceeding on the ordinary basis, as agreed or as assessed in accordance with the applicable costs' assessment legislation, other than the costs of the hearing on 28 June 2022, in respect of which there be no order as to costs (with the intent that each party is to bear its or his own costs of the proceeding on that day). 5. Subject to order 6, F & F Smart Homes Pty Ltd is to pay Abdul Nateen Rehman's costs of the appeal on the ordinary basis, as agreed or as assessed in accordance with the applicable costs' assessment legislation. 6. Should either party seek a different appeal costs' order, the following directions apply: 1. The applicant for costs (costs' applicant) must file and serve any application with its written submissions on that issue only (no more than 5 pages) within 14 days of the date of these orders. 2. Upon filing an application in accordance with order 6(a), order 5 will cease to have effect. 3. A costs' respondent must file and serve any written submissions in response to the issue of costs only (no more than 5 pages) within a further 14 days of receipt of the costs' applicant's submissions. 4. A costs' applicant may file and serve a written submission (no more than 3 pages) strictly in reply to a costs' respondent's submission within a further 7 days of receipt of the costs' respondent's submissions. 5. In any such submissions the parties are to address the matter of whether pursuant to the provisions of the Civil and Administrative Tribunal Act 2013 NSW, s 50(2), the Appeal Panel should dispense with a hearing on the issue of the costs of the appeal, so that the issue is decided on the papers lodged with the Appeal Panel and with appearances of the parties not required.

Rehman v F & F Smart Homes Pty Ltd

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