Schach v Dowdy Constructions Pty Ltd [2025] NSWCATCD 84;

(a) Master Bedroom and Ensuite

(b) Ensuite & Bathroom S bends

(c) First Floor Timber Flooring

(d) Main Bathroom

(e) Roofing

(f) External - Northern Wall

(g) External - Back Veranda

33. By the Hearing of these proceedings the Applicant had already incurred costs of the First Proceedings, the Set Aside Application and these proceedings.

"[T]he respondent's conduct before and after the commencement of these proceedings, was unreasonable and when taken as a whole, engages s 60(3)(b), (f) and (g) or the Tribunal's general discretion in s 60(2)-(3)."

1. The applicant identified three reasons why he submitted the respondent's conduct was unreasonable:

(1) That the respondent "fundamentally refus[ed] to undertake any works to the property", which the applicant submitted was "entirely analogous" to the example given by McHugh J in Lai Qin "where a defendant refuses to exercise power such that the 'plaintiff had no reasonable alternative but to commence a litigation'".

(2) That the respondent unreasonably prolonged the time taken to complete the proceedings - by failing to appear at the first hearing on 19 February 2024. The applicants submitted that, to the extent that the respondent's failure to appear was due to default by its former solicitors, that was not a matter that would make it just that the applicant should bear the costs.

(3) That the respondent unreasonably defended the proceedings. The applicant submitted that the respondent consented to undertake works on the day of the hearing "which it could have agreed to over a year earlier" or "by undertaking the works proposed in the ... Orders [made on 19 February and subsequently set aside]".

1. The applicant further submitted that, pursuant to s 60(3)(c) of the NCAT Act, the Tribunal may have regard to the relative strengths of each party's claims, and also referred to the statement by McHugh J in Lai Qin that costs might be awarded where, although both parties have acted reasonably, one party was almost certain to succeed if the matter had been fully tried. The applicant submitted that this is not a case where the respondent could be said to have "merely mounted a 'defence which is not likely to succeed' or was arguable".
2. The applicant submitted that the respondent mounted no defence and that the expert report filed by the respondent acknowledged the defective works. The applicant maintained that the significant difference between the two experts was in respect to the methodology for repair and the costs involved. The applicant submitted that, because the experts agreed that there were seven areas of defects requiring rectification, the applicant was inevitably going to succeed if the matter had not been resolved by consent.
3. The applicants further submitted that the respondent had effectively capitulated. The applicants submitted that in determining whether a party had capitulated "the focus... Should be on the 'outcome', 'substance' or 'practical result' of the consent orders... rather than the form of the relief sought". The applicant cited the Court of Appeal decision in Nadilo v Eagleton [2021] NSWCA 232 in support of this submission.
4. The applicant submitted in the alternative that the Tribunal should award the applicant the costs of what the applicant described as the first proceedings, more accurately described as the first hearing, and the set aside application. The applicant suggested that the principles applicable to the setting aside of a default judgment, that is that the party seeking to set aside the judgment should pay the costs thrown away, are applicable by analogy in this case.

1. The respondent's submissions were brief, extending over four pages in a relatively large font.
2. The respondent submitted:

1. The original leak was repaired during construction with all parties happy with the outcome.

The 2nd repairs were assessed by the insuring assessor and works were completed to this scope of works and the applicant's approvals.

2. Both parties entered discussions with the respondent stating clearly from the start that they would rectify all the issues after going through the correct processes.

The respondent's insurer made it noticeably clear that the applicant needed to show evidence of the claim. The insurers assessor visited the site and made this clear to Mr Schach.

Months went by with the applicant not doing this.

During our first 2 NCAT meetings, the NCAT member also informed the applicant that he would need to get a report and show evidence of the claim.

After this the applicant finally conducted a report which has cause the extensive delays.

From the first phone from Mr Schach to Dowdy Constructions, Dowdy Constructions has always agreed to do the repairs, without any need for it to go to NCAT.

If Mr Schach had shown evidence of the claim from the very beginning, then the works would be already completed by now and neither party would have incurred any legal costs.

...

9. The initial report proved by Mr Schach was a non-invasive report showing 45 items as defects.

A second report was then conducted which was invasive and showed evidence of the claim which Dowdy Constructions had been waiting for, for months.

The report provided was not in the format of a Scott Schedule that is required by NCAT.

...

Dowdy Constructions engage Awesim consulting as their Expert witness report. Awesim consulting narrowed the 45 defects down to 7 main items which both the applicant and Mr Schach expert witness agreed with.

Dowdy Constructions expert witness had requested the reports a number of times from the applicants' solicitors which delayed resolution, and he also requested that the applicant's expert provide their findings in an actual Scott schedule.

The final result from the applicant's witness was still not in a Scott schedule and was not received by Dowdy Constructions or by Awesim Consulting.

We were handed a copy at the hearing after we asked the applicants solicitor for a copy.

Awesim Consulting then had to go out to read the incorrect laid format report.

10. At the start of the hearing the NCAT member and Dowdy Constructions were made aware that Mr Schach expert witness only had 1 hr before he had to leave to catch a flight.

Dowdy Constructions Expert witness was engaged to allow the entire day as per the NCAT order.

Dowdy Constructions requested that we try to resolve the issues in an outside meeting room as now they had the evidence for the claim and as stated always intended to carry out the works.

1. The respondent's submissions included the following explanation for its failure to appear on 19 February 2024:

7. The hearing dates had been changed a number of times by Mr Schach and when the final date was posted out it was sent to Dowdy Constructions accountant and not directly to Dowdy Constructions. Dowdy Constructions email and phone number are for public display online and know by Mr Schach and his legal team.

Dowdy Constructions also did not receive a phone from the court on the day of the hearing when it was evident he was late.

1. In his submissions in reply the applicant asserted that the facts stated in the respondent's paragraph 2 were not accurate. The applicant stated:

(a) The Applicant had been seeking assistance and for the works to be undertaken by the Respondent from 2020 until May 2023 when the proceedings were commenced. At all times, the Respondent was evasive, unable to be contacted and failed to attend to the necessary rectification.

(b) This matter was a claim for defective works and as such, there was no requirement for the Applicant to prove to the Respondent's insurer that there were defective works.

(c) It was only after the Directions Hearing on 5 October 2023 and the continued failure of the Respondent to attend to investigate the continual water ingress that the Applicant incurred legal costs including the costs of the report writer.

1. The applicant maintained that he had been obliged to commence proceedings when he did in order to avoid the expiry of the warranty period (as specified in s 18E of the Home Building Act 1989 (NSW)).
2. In response to paragraph 10 of the respondent's submissions, the applicant submitted:

(a) The experts had met in conclave prior to the hearing in order to prepare the joint report.

(b) The expert for the Respondent had not read the joint report prior to the Hearing notwithstanding that he had been back in Australia (after going overseas before the report had been finalised) for at least 3 days and required additional time in the morning of the Hearing to prepare;

(c) Agreed on most points with minimal matters to be resolved in respect to the proposed Scope of Works;

(d) The Respondent sought to negotiate a settlement with the Applicant;

(e) The evidence required to be adduced from the expert on behalf of the Applicant would have only taken 1 hour due to the contents of the joint report.

1. Although the respondent did not in its submissions address the question whether rule 38 applied, it is clear that the amount claimed or in dispute in the proceedings did exceed $30,000. That is clear from the Joint Report of the experts in which the respondent's expert estimated the cost of rectification of the agreed defects at over $95,000.
2. Because rule 38 applies, s 60 is not applicable and, as the proceedings have been resolved without a hearing, the governing principles are those outlined by McHugh J in Lai Qin. The caveat expressed by the Appeal Panel in Roberts v The Owners - Strata Plan No 4393 concerning the application of those principles where s 60 applies, has no relevance.
3. The application of the Lai Qin principles in circumstances where rule 38 applies were considered extensively by the Appeal Panel in BCA Constructions Pty Ltd v Arsovski [2024] NSWCATAP 31 at [85]- [121]. Like these proceedings, that appeal involved the question whether an order for costs should be made when the proceedings had been resolved by consent by the making of a work order.
4. The Appeal Panel referred to Bulloch v Linden Building Services Pty Ltd t/as Linden Constructions [2019] NSWCATAP 42 which concerned the allocation of costs where an owner had brought proceedings under the Home Building Act seeking damages of approximately $140,000 for the cost of rectifying defective work performed in breach of s 18B of the HB Act. Both parties had engaged building experts, who conferred prior to the hearing and prepared a joint report. The parties agreed to a consent work order based on the joint report and a further report by an engineer engaged by the owner. In that case, the Appeal Panel stated, at [21]-[22]:

21 In this case it is apparent from the Senior Member's reasons that, on the basis of the material before him, he was not satisfied, however, without hearing evidence, that the homeowners would be almost certain to succeed. We agree with the builder that the mere fact consent orders are entered into is insufficient to establish that one party would be almost certain to succeed if the matter went to hearing. While there may be circumstances, as in the Gregory matter, where that outcome may have been inevitable, as McHugh J stated, those cases are rare.

22 The fact that the consent orders contain an agreed scope of works does not, in our view, indicate that the Senior Member was bound to accept that, had the matter proceeded to hearing, matters would not have been contested and a similar outcome would have been reached. It was, of course, not permissible for the Senior Member to try a hypothetical action between the parties.

1. In BCA Constructions v Arsovski the Appeal Panel held, at [110]-[111]:

110 It is not sufficient that the Tribunal is almost certain that a work order of some type would have been made. If that were the applicable test, then any consent order for any work in proceedings where the amount claimed or in dispute exceeded $30,000 would result in an order for costs in favour of the owners, irrespective that, had the proceedings been heard to finality, the owners were likely (or even certain) to have failed on substantial issues which may have resulted in the owners not being awarded costs.

111 Rather, the appropriate enquiry is that "even if both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried so that the party should obtain the costs of the action" (emphasis added) (Kiama Council v Grant [2006] NSWLEC 96 at [80]).

1. As the Court of Appeal noted in Nichols v NFS Agribusiness, it is not appropriate for the Tribunal in considering the question of costs to conduct a hypothetical trial of the action. Nor is it appropriate for the Tribunal to engage in a detailed consideration of the evidence in order to resolve disputed issues of fact.
2. It is clear from the respondent's submissions, brief as they are, that the respondent disputes the proposition that it consistently (or "fundamentally") refused to contemplate the rectification of defective work at the applicant's property. The respondent asserts that it was prevented from doing so by the need for a report for the benefit of its insurance company and the failure of the applicant to provide a detailed report. That issue has not been explored fully and it would not be appropriate to speculate about the issues which may have brought about that situation.
3. The respondent maintains that it was only 7 of 45 defects alleged by the applicant's expert which were agreed by the respondent's expert and formed the basis of the work order.
4. The applicant did not, in his reply submissions, specifically take issue with that proposition.
5. I was made aware at the hearing on 22 August 2024 that the applicant's expert was only available for a short period on that day. I was not party to any further discussions and have no basis to speculate concerning the impact that may have had on the respondent's decision to resolve the proceedings.
6. The applicant's submissions do not provide any reasoned explanation of why, if the matter had gone to a contested hearing, the applicant must have succeeded, not only in obtaining orders in his favour but also an order for costs.
7. The bald assertion that the respondent's defence was unreasonable does not advance the applicant's case. The only reason it is said to have been unreasonable is because the respondent agreed to rectify seven items. It may be noted that the orders made on 19 February 2024 which were set aside required the applicant to prepare further evidence concerning issues of water ingress referred to in six numbered items in the applicant's expert report and required the respondent to repair 39 other items.
8. It cannot be said that the consent orders reflect the case that the applicant was maintaining in February 2024 and accordingly it cannot be said that the respondent acted unreasonably in defending the case that the applicant was maintaining.
9. For the same reasons, that is that the applicant did not succeed in establishing the whole of the case he had been maintaining, it is not possible to say that the respondent capitulated by agreeing to the consent orders made on 22 August 2024.
10. For the foregoing reasons, I am not persuaded that it is appropriate to make an order that the respondent pay the applicant the costs of the proceedings.
11. Nevertheless, I do consider that the applicant should receive the costs thrown away by reason of the respondent's failure to appear on 19 February 2024 and the application to set aside the orders made on that occasion.
12. As I have noted above, it does not appear that the notice of hearing was sent to any solicitors retained or formerly retained by the respondent. Rather, as the respondent's costs submissions acknowledge, the notice was sent to the registered office of the respondent, which is the office of its accountants. It is incumbent on any company to ensure that documents sent to its registered office are received by the appropriate officer or employee and dealt with.
13. The respondent's director, Mr Matthew Dowdy, was careless to say the least in stating in the set aside application that the notice was sent to the solicitors. It may be noted that he attached to the set aside application a statutory declaration in which he verified that the information provided on the application form was true and correct. Although it is not appropriate in this decision to question whether the set aside application would have been granted if Mr Dowdy had not provided the false information that the notice had been sent to his solicitors, I am reinforced in my conclusion that the respondent should pay the costs thrown away by reason of its non-attendance at the hearing on 19 February by the fact that the respondent made a false statement in the set aside application and that Mr Dowdy verified that false statement in his statutory declaration.
14. The respondent has not sought to suggest that there was any reason beyond carelessness or inattention that led to the notice of hearing not coming to the attention of its director. Whether the fault lay with the respondent's accountant, or with the respondent itself, the applicant should not bear the costs of the abortive hearing or the respondent's application for the indulgence of having the decision set aside.
15. Accordingly, I will order that the respondent pay the applicant's costs thrown away by reason of the setting aside of the orders made on 19 February 2024, including the costs of and incidental to the hearing on that date, and the costs of and incidental to the respondent's application to set aside those orders. Such costs to be as agreed or assessed.
16. I will otherwise dismiss the applicant's application for costs.

(1) The respondent pay the applicant's costs thrown away by reason of the setting aside of the orders made on 19 February 2024, including the costs of and incidental to the hearing on that date, and the costs of and incidental to the respondent's application to set aside those orders. Such costs to be as agreed or assessed.

(2) The applicant's application for costs is otherwise dismissed.

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.