Rockwall Constructions Pty Ltd v Nayak

NCAT Appeal Panel|2018-02-01|Before: Ms J

Introduction

This is an application for costs made by the respondent (the homeowners) against the appellant (the builder), arising from an internal appeal under s 80(1) of the Civil and Administrative Tribunal Act 2013 (NSW) (the NCAT Act) in respect of proceedings HB 15/48165. The appeal was lodged on 6 March 2017, was listed for call over on 21 March 2017 and for hearing on 17 May and 30 August 2017.
On 8 December 2017, we made the following orders in relation to the appeal proceedings: (1) Leave to appeal is refused. (2) The appeal is dismissed. (3) The stay order made on 22 March 2017 is lifted. (4) Any application for costs is to be made in writing to the Tribunal (with a copy sent to the other party) within 14 days of the date of publication of these reasons for decision and is to be accompanied by a submission not exceeding three pages in length. (5) Any submission in response to the costs application is not to exceed three pages in length and is to be provided to the Tribunal and the other party within 14 days of receipt of the costs application. (6) Any submission in reply is to be provided to the Tribunal within seven days thereafter. (7) In their submissions on costs, the parties are to address whether the issue of costs can be determined without a hearing, on the basis of the written submissions.
The homeowners applied for costs on 20 December 2017. No submission has been received from the builder.

Effect of dismissal of appeal

The effect of our decision on the builder's appeal is that the orders made by the Tribunal on 6 February 2017 remain in full force and effect.
Relevantly, the Tribunal ordered: 1. Builder is to pay the homeowners $404,908 plus interest computed in accordance with Regulation 39 on or before 10 February 2017. ……
Related proceedings between the parties resulted in a costs order being made against the homeowners: Reasons for decision in proceedings HB 14/44429. It is common ground that part of the costs relevant to that order remains unpaid.
In addition, a sum payable to the builder arising from other related proceedings also remains unpaid: Reasons for decision in proceedings HB 14/53291 and in Nayak v Rockwall Constructions Pty Ltd [2017] NSWCATAP 18

Costs under NCAT legislation

The general rule in relation to costs in the Tribunal is that unless special circumstances are established, the parties pay their own costs: s 60(1) of the NCAT Act.
However, cl 38 of the Civil and Administrative Tribunal Rules 2014 (the Rules) modifies the application of s 60 in proceedings before the Consumer and Commercial Division of the Tribunal. Clause 38(2)(a) provides that in proceedings where the amount claimed or in dispute is more than $30,000, the Tribunal may award costs in the absence of special circumstances.
In this matter, the proceedings at first instance were brought under the Home Building Act 1989 (NSW). Pursuant to section 3 of Schedule 4 of the Act, proceedings under the Home Building Act are allocated to the Commercial and Consumer Division of the Tribunal. The amount claimed by the homeowners in the proceedings at first instance exceeded $30,000. Therefore, cl 38 is the costs provision relevant to the Tribunal proceedings.
In relation to costs of the appeal, cl 38A of the Civil and Administrative Tribunal Rules 2014 states: 38A Costs in internal appeals (1) This rule applies to an internal appeal lodged on or after 1 January 2016 if the provisions that applied to the determination of costs in the proceedings of the Tribunal at first instance (the first instance costs provisions) differed from those set out in section 60 of the Act because of the operation of: (a) enabling legislation, or (b) the Division Schedule for the Division of the Tribunal concerned, or (c) the procedural rules. (2) Despite section 60 of the Act, the Appeal Panel for an internal appeal to which this rule applies must apply the first instance costs provisions when deciding whether to award costs in relation to the internal appeal.
As the appeal in this matter was lodged after 1 January 2016 and concerns proceedings to which cl 38 of the Rules applies, it follows that r 38A applies to costs of the appeal.
This means that we are not required to find special circumstances when making a costs order. Where an appeal has been heard and determined on the merits and cl 38A applies, the appropriate starting point for the exercise of the discretion is not that the parties are to pay their own costs. Rather, it is the well-established position at common law; that is, that the purpose of making a costs order is to provide compensation to the party in whose favour the order is made for the expense the party has been put to in prosecuting or defending legal proceedings. In general terms, this means that a party who is successful is entitled to an order for costs in its favour, subject to exceptions generally involving misconduct on the part of that party: Latoudis v Casey [1990] 170 CLR 534; Oshlak v Richmond River Council [1998] HCA 11).

Calderbank offers

Calderbank offers are made pursuant to the principles set out in Calderbank v Calderbank [1976] Fam Law 93; 3 All ER 333; 3 WLR 586. Such principles have been the subject of extensive judicial and Tribunal consideration. In Singapore Airlines Cargo Pty Ltd v Principle International Pty Ltd (No 2) [2017] NSWCA 340, the NSW Court of Appeal stated (at [30]): "Calderbank offers are a well-established means of parties seeking to compromise proceedings in circumstances where, provided that the offer is a genuine offer of compromise and the opposing party unreasonably rejects the offer, the court may, in the exercise of its discretion, make a special costs order in favour of the offeror".
In relation to a claim for indemnity costs based on the refusal of a Calderbank offer, a Calderbank offer in more favourable terms that the outcome of proceedings does not of itself entitle the offeror to an order for indemnity costs: Jones v Bradley (No. 2) [2003] NSWCA 258.
In Miwa Pty Ltd v Siantan Properties Pte Ltd (No. 2) [2011] NSWCA 344, Basten JA identified two questions which are relevant to a Calderbank offer and a claim for indemnity costs. They are whether there was a genuine offer of compromise and whether it was unreasonable for the offeree not to accept it.
Basten JA (with whom McColl and Campbell JJA agreed) adopted the non-exclusive list of factors identified by the Victorian Court of Appeal in Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2) [2005] VSCA 298; (2005) 13 VR 435 at [25]: 1. the stage of the proceeding at which the offer was received; 2. the time allowed to the offeree to consider the offer; 3. the extent of the compromise offered; 4. the offeree's prospects of success, assessed as at the date of the offer; 5. the clarity with which the terms of the offer were expressed; 6. whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejecting it.

Homeowners' submission

The homeowners relevantly submit that:

The homeowners must be regarded as the successful party in the appeal.
On 26 April 2017, the homeowners made a Calderbank offer to the builder to settle the disputes between the parties once and for all and to bring all litigation to an end.
The offer was that the owners would accept $319,000 in full and final settlement of all claims between the parties.
The offer was left open for 14 days, but lapsed without any reply or counter offer from the builder.
The outcome for the builder has been less advantageous than the Calderbank offer.
The rejection of the offer was unreasonable in circumstances where it was made not long after the appeal was filed, the builder's poor prospects of success had been communicated at the earliest opportunity, the homeowners offered a substantial compromise, the builder had ample time to consider the offer and did not seek any extension of time, the offer was expressed with clarity and precision and the offer foreshadowed an application for an indemnity costs order in the event that it was rejected.
The homeowners seek an order that the builder pay costs on an ordinary basis until 26 April 2017 and on an indemnity basis after that date.

The homeowners' Calderbank offer

The Calderbank offer referred to by the homeowners is attached to their costs submission. It relevantly states: We believe that your client has got no prospect of succeeding with its appeal and that there is a good chance of a costs order against your client in the appeal on the basis of there being special circumstances. The position in round figures appears to be as follows:
Order of Member Smith $405,000
Interest per order of Member Smith $29,000
Estimated costs in Tribunal $50,000
Estimated costs in Appeal $10,000
Estimated balance on costs order including interest $29,000
Order of Senior Member Goldstein $46,00 $75,000 $419,000

Thus my clients can reasonably expect a net outcome of approximately $419,000. However, in the interests of settling this matter, I have been instructed to offer that my clients will accept $319,000 in full and final settlement of all claims. This offer is subject to a Mutual Deed of Release on appropriate terms being executed and exchanged between the parties and the following orders being made by consent: (a) In the Appeal Panel matter, appeal dismissed with parties to pay their own costs. (b) In the Tribunal matters, orders set aside and the parties to pay their own costs. This offer is open for a period of 14 days from the date hereof and acceptance may be effected in writing. A binding agreement will come into effect immediately on acceptance of this offer. Payment will be required to be made in 3 equal tranches of $106,333 within 30, 60 and 90 days of acceptance. Any late payment will be subject to interest at 10% per annum plus $350.00 for each late payment to cover administration costs. This offer is made in accordance with the principles enunciated in Calderbank v Calderbank [1975] All ER 333. I believe the offer is generous and a genuine attempt to compromise. It would therefore be unreasonable for your client to reject the offer. If it is rejected, this letter will be tendered to the Appeal Panel in support of an indemnity costs application.

Issues

The issues to be determined on the costs application are:

Should an order be made dispensing with a hearing in accordance with s 50(1)(c) of the NCAT Act?
Should an order for costs be made in favour of the homeowners?
If so, on what basis should the costs order be made?

Should an order be made dispensing with a hearing in accordance with s 50(1)(c) of the NCAT Act?

The parties were given an opportunity to make submissions in relation to whether a hearing on costs should be dispensed with. The homeowners did not submit that costs could not be determined on the papers. As noted above, we have received no submissions on costs from the builder.
We are satisfied that the issue of costs can be adequately determined in the absence of the parties by considering the parties' written submissions.
An order under s 50(1)(c) of the NCAT Act has accordingly been made.

Should an order for costs be made in favour of the homeowners?

The homeowners were clearly the successful party in the appeal proceedings.
The starting position is be that they are entitled to recover their costs of and incidental to the appeal proceedings in circumstances where there has been no submission that there is disentitling conduct on their part to cause the discretion to award costs in their favour not to be exercised.

On what basis should the costs order be made?

The homeowners seek an order for costs on an indemnity basis from 26 April 2017, the date on which they sent a Calderbank offer to the builder. We accept the uncontested submission that the builder did not respond to the letter or make a counter offer.
We accept the uncontested calculations in the Calderbank offer in relation to the amount of interest payable by the builder in respect of the award in the proceedings below and by the homeowners to the builder in respect of the outstanding costs order. We also accept the uncontested estimate of the owners' costs below and on appeal. In view of the orders that have been made both in favour of and against the homeowners, we accept that the effect of the offer was that, if it had been accepted, the builder would have received a substantial discount on the sum it is required to pay to the homeowners.
We accept that the homeowner's Calderbank offer was a genuine compromise. In relation to this, it took into account the orders that had been made in the builder's favour and allowed the builder a substantial discount on the amount it would have been required to pay to the homeowners under the Tribunal orders then in force.
In addition, the offer was made early in the appeal proceedings - after the call over on 21 March 2017, but before the first hearing date on 17 May 2017 - and therefore offered the builder an opportunity to avoid incurring substantial legal fees in the appeal. Further, the offer was open for 14 days, which we consider to be a reasonable and adequate amount of time for the builder to consider its position as regards the appeal. The terms of the offer were clear and made plain that if the offer were not accepted the homeowners reserved the right to make an application for indemnity costs, which is of fundamental importance to whether an offer is made on a Calderbank basis: Whitney v Dream Developments Pty Ltd (2013) 84 NSWLR 311; [2013] NSWCA 188, at [57]; Singapore Airlines Cargo Pty Ltd v Principle International Pty Ltd (No 2) [2017] NSWCA 340 at [30]-[36],.
In relation to whether the builder was unreasonable in rejecting the offer, we consider that as at 26 April 2017, the builder had little prospect of success. The builder had seven grounds of appeal, which in effect concerned two issues; that is, the Tribunal's jurisdiction to hear the application when an earlier application by the homeowners had been dismissed without a hearing on the merits and the effect of the homeowners not agreeing to enter into a further contract with the builder after the builder purported to terminate the contract.
We stated in our reasons for decision on the appeal: Grounds 1 and 2 relate to whether the Tribunal had jurisdiction to deal with the owners' application after the owners' earlier application had been dismissed and, if the Tribunal did have jurisdiction, whether the proceedings were vexatious or an abuse of process. It is appropriate to deal with jurisdiction before dealing with whether the proceedings were vexatious of an abuse of process. Grounds 3 to 7 relate to whether the owners failed to mitigate their loss by not entering into negotiations with the builder for a new contract after the builder had repudiated the original contract, or in the alternative whether the loss suffered by the owners arose from their failure to enter into negotiations for a new contract rather than from the builder's repudiation of the contract.
Neither issue and therefore none of the grounds of appeal had any real merit for the reasons set out in the decision on appeal. In our view, this should have been reasonably clear to the builder as at the date of the Calderbank offer. The builder's prospects of success in the appeal were, assessed objectively, minimal at the date the offer was made.
We do not regard the stipulation in the offer that the parties execute a Deed of Release, or that payment be made by instalments with interest consequences for late payment, causes the rejection of the offer not to have been unreasonable, when considered in the context of the significant compromise constituted by the offer and the minimal prospects of success of the builder in the appeal.
As a result, we find that the builder's rejection of the homeowner's Calderbank offer was unreasonable.
We therefore find that the builder should be ordered to pay the homeowners' costs on an indemnity basis from 26 April 2017.

Orders 1. A hearing on costs is dispensed with pursuant to s 50(1)(c) of the Civil and Administrative Tribunal Act 2013. 2. Rockwall Constructions Pty Ltd is to pay Srinivas Nayak and Deepti Nayak's costs of the appeal, on the ordinary basis until 25 April 2017 and on an indemnity basis thereafter.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 May 2018

At a glance

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