Sunaust Properties Pty Ltd v The Owners Strata Plan no 64807

The Appellant/Caretaker's Submissions

1. The Caretaker submitted that special circumstances exist under s 60 of the NCAT Act warranting an award of costs. The Caretaker relies upon s 60(3)(b), (c), (d) and (e).
2. Section 60 is in the following terms: 60 Costs (1) Each party to proceedings in the Tribunal is to pay the party's own costs. (2) The Tribunal may award costs in relation to proceedings before it only if it is satisfied that there are special circumstances warranting an award of costs. (3) In determining whether there are special circumstances warranting an award of costs, the Tribunal may have regard to the following-- (a) whether a party has conducted the proceedings in a way that unnecessarily disadvantaged another party to the proceedings, (b) whether a party has been responsible for prolonging unreasonably the time taken to complete the proceedings, (c) the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law, (d) the nature and complexity of the proceedings, (e) whether the proceedings were frivolous or vexatious or otherwise misconceived or lacking in substance, (f) whether a party has refused or failed to comply with the duty imposed by section 36(3), (g) any other matter that the Tribunal considers relevant. (4) If costs are to be awarded by the Tribunal, the Tribunal may-- (a) determine by whom and to what extent costs are to be paid, and (b) order costs to be assessed on the basis set out in the legal costs legislation (as defined in section 3A of the Legal Profession Uniform Law Application Act 2014 or on any other basis. (5) In this section-- "costs" includes-- (a) the costs of, or incidental to, proceedings in the Tribunal, and (b) the costs of, or incidental to, the proceedings giving rise to the application or appeal, as well as the costs of or incidental to the application or appeal.
3. The Caretaker submitted that it succeeded on a fundamental issue which it had drawn to the attention of the Owners Corporation early in the proceedings, namely that the Tribunal lacked jurisdiction because of the pre-existing Supreme Court proceedings. The Owners Corporation ignored the effect of cl 5(7) of schedule 4 of the NCAT Act and caused the Caretaker to incur costs it would not otherwise have incurred. Such costs are "out of the ordinary".
4. In seeking a costs order at first instance, the Owners Corporation had submitted that the proceedings raised complex issues of law, and that some issues were novel which would be difficult, if not impossible, for a lay person to deal with. The Owners Corporation also submitted that the proceedings were factually complex ranging over a 20-year period.
5. In the light of those submissions the Caretaker submitted that the Owners Corporation can hardly seek to resile from that position having been unsuccessful in the appeal.
6. With respect to the costs of the appeal, the Caretaker submitted that the appeal raised complex factual and legal issues (relevant to s 60(3)(d)). The Caretaker also submitted that the Owners Corporation chose to take a course directly contrary to the plain words of clause 5(7) - relevant to s 60(3)(c). The Caretaker further submitted that the Owners Corporation took a course that was simply legally misconceived and lacking in substance within the meaning of s 60(3)(e) and that in doing so it was frivolous and vexatious.
7. With respect to the first instance proceedings, the Caretaker submitted that the Owners Corporation should not have brought the proceedings. Almost all of the evidence adduced and submissions made dealt with factual and legal issues the subject to the Supreme Court proceedings. Due to the factual and legal issues raised by the Owners Corporation, the Caretaker submitted that it was forced to respond with the result that the first instance proceedings were unusually lengthy (four days of hearings) and there was much work required for preparation. These matters are relevant to s 60(3)(b). The nature and complexity of the proceedings is apparent and that matter is relevant to s 60(3)(d)
8. The Caretaker submitted that the appropriate costs order was one ordering indemnity costs to be paid. It submitted that it had drawn to the attention of the Owners Corporation the relevance of clause 5(7) at an early stage of the proceedings. It further submitted that it had put a Calderbank offer to the Owners Corporation offering to settle both the proceedings at first instance and the appeal on the basis that it would receive only 50% of the costs, which was a significant compromise. The offer was not accepted. Rejection of the offer was unreasonable.
9. The Caretaker further submitted that it had made another offer in August 2022 containing a proposal that the Owners Corporation pay the Caretaker's costs of the appeal on the ordinary basis, that previous costs orders made in the appeal adverse to the Caretaker be vacated, the costs order made at first instance be vacated and be replaced by an order that the Owners Corporation pay the Caretaker's costs on the ordinary basis. The Caretaker submitted that if a costs order is made in terms equivalent to or better than the offer contained in the Caretaker's letter of 2 August 2022, then the order for indemnity costs should also include the costs of the costs argument.
10. The Caretaker's submissions referred to interlocutory orders made in the appeal proceedings (by an Appeal Panel differently constituted) which involved costs orders made against the Caretaker. The Caretaker submitted that those orders need to be vacated as they interfere with the operation of the Caretaker Agreement and the Caretaker's rights under it.
11. The Caretaker submitted that the following orders should be made: 1. The Owners Corporation is to pay the Caretaker's costs of the appeals (both the substantive appeal and the appeal with respect to the first instance costs orders) on an indemnity basis including the cost argument. 2. The Owners Corporation is to pay the Caretaker's costs of the proceedings at first instance on the ordinary basis up to 23 February 2021 and on the indemnity basis thereafter. 3. The orders made on 28 March 2022 in the proceedings at first instance concerning costs be set aside. 4. The orders made by the Appeal Panel on 24th February 2022,6 April 2022 and 26 May 2022 be vacated. 5. The Owners Corporation is to pay the Caretaker's costs of the hearings which occurred on 24 February 2022, 6 April 2022 and 26 May 2022 in the appeal proceedings on an indemnity basis.

The Costs Submissions of the Owners Corporation.

1. The Owners Corporation submitted that the Appeal Panel should make the following orders: 1. There be no order as to costs of the appeal with the intent that each party pay their own costs. 2. In the alternative to (1) above, the Owners Corporation pay 50% of the Caretaker's costs of the appeal and the Caretaker pay 50% of the Owners Corporation's costs excluding the interlocutory orders which are the subject of separate costs orders already made. 3. The costs of the hearing at first instance be costs in the cause of the remitted rehearing to be determined by the Tribunal member hearing the remitted proceedings.
2. After setting out the relevant legal principles concerning costs orders in the Tribunal, the Owners Corporation submitted that the Caretaker had raised approximately 35 grounds of appeal, had succeeded in three, had lost on two and the remaining issues were not determined. The three grounds upon which the Caretaker succeeded did not concern the merits of the underlying dispute between the parties.
3. The claim at first instance cannot be described as untenable. The Owners Corporation was successful on grounds raised at first instance which were not grounds considered by the Appeal Panel to be overlapping with grounds in the Supreme Court. The mere fact that the Appeal Panel took a different view on the applicability of cl5(7) to the Tribunal at first instance does not mean that the owner's application had no tenable basis.
4. The Owners Corporation referred to the submission of the Caretaker to the effect that because the Appeal Panel found that some issues before the Tribunal overlap with issues in the Supreme Court, it follows that the Owners Corporation's application was legally misconceived and lacking in substance within the meaning of s 60(3)(e). The fact that the Owners Corporation was successful at first instance in obtaining an order terminating the Caretaker agreement on 13 identified grounds, would strongly indicate that the application for termination was not frivolous or vexatious or otherwise misconceived or lacking in substance. The fact that the Appeal Panel has now found that four of those grounds should not have been considered by the Tribunal at first instance due to overlap with the Supreme Court does not render the application as one that is misconceived or lacking in substance. Nor can be said that the Owners Corporation in seeking to uphold on appeal the decision at first instance in relation to the applicability of cl 5(7) was frivolous or vexatious or otherwise misconceived or lacking in substance.
5. In short, the Owners Corporation submitted that there are no special circumstances warranting an order for costs.
6. With respect to grounds 1 and 2 of the appeal, the position is that the Appeal Panel determined those grounds against the Caretaker and upheld the first instance decision in respect of the issues identified in those two grounds. However, the parties were put to unnecessary additional time, effort and expense in relation to these grounds by the unreasonable attitude adopted by the Caretaker. Rather than embracing the determination of grounds 1 and 2, the Caretaker unreasonably opposed the Appeal Panel doing so. That resulted in submissions from both sides on that question. The Owners Corporation submitted that it was astonishing that a party would not want its own grounds of appeal to be determined, particularly when a favourable determination would have put a complete end to the Owners Corporation's application rather than just a remittal. It can be inferred that the Caretaker knew that those grounds were manifestly weak and unlikely to succeed. The bizarre circumstances of an Appellant (the Caretaker) unsuccessfully arguing that its own grounds of appeal should not be determined are indeed "special" and ought to warrant a costs order being made in favour of the Owners Corporation in respect of that issue.
7. The Owners Corporation submitted that the Caretaker had conducted itself in the appeal in a manner that was contrary to the guiding principle in the NCAT Act namely to "facilitate the just, quick and cheap resolution of the real issues in the proceedings" (s 36). The Caretaker did not focus on questions of law truly in dispute but sought to make every possible legal and factual finding and conclusion contained in the first instance decision a ground of appeal. This resulted in 35 separate grounds of appeal and sub-grounds of appeal.
8. The Owners Corporation submitted that if the Appeal Panel finds that special circumstances exist, it should not exercise its discretion to award costs in the Caretaker's favour. The discretion should be exercised to reflect the outcome of the respective issues that were decided - grounds 1 and 2 in favour of the Owners Corporation and grounds 3.1, 3.2 and 3.3 in favour of the Caretaker. The Owners Corporation was put into the difficult and costly position of having to respond to the vast quantity of unnecessary material put forward in the appeal by the Caretaker. The Owners Corporation should not be required to pay some costs incurred in relation to that unnecessary material on which no determination was ultimately made. Rather than determine the costs by reference to issues which the parties respectively won (or lost), the pragmatic approach would be to notionally set off each costs order against the other and make no order as to costs.
9. With respect to the interlocutory costs orders made during the course of the appeal, the Owners Corporation submitted that there is no basis for those orders to be interfered with.
10. With respect to costs of the proceedings at first instance, the submissions of the Owners Corporation are summarised in the paragraphs that follow.
11. The Owners Corporation referred to an interlocutory decision made in the course of the first instance proceedings which appeared to the member determining the proceedings at first instance to constitute consideration of the question of jurisdiction and the operation of clause 5(7) to the effect that the Owners Corporation's application (after removal of one of the orders being sought) no longer constituted a breach of clause 5(7). The Caretaker did not appeal that interlocutory decision and the Owners Corporation cannot now be criticised for proceeding with its termination application. There are no special circumstances arising from a party merely proceeding with an application the opposing party tried and failed to have summarily dismissed and much less a basis for costs to be ordered on an indemnity basis.
12. The Owners Corporation submitted that the Tribunal that hears the remitted application will be best placed to determine what costs orders, if any, should be made with respect to the first instance proceedings both before and after the remittal. One reason given for that submission was that the Supreme Court proceedings may involve findings of fact which will be relevant in the Tribunal's consideration of whether the Caretaker Agreement should be terminated.
13. The Owners Corporation's submissions concerning the Caretaker's claim for indemnity costs are summarised are below.
14. The Owners Corporation submitted that the basis for the Caretaker's claim for indemnity costs arises out of the Calderbank offer made 23 February 2021 by which the Owners Corporation was invited to capitulate (ie. the application being dismissed by consent) with the agreement to pay 50% of the Caretaker's cost on a party and party basis. Since then, the Owners Corporation's application has not been dismissed. It has been remitted for redetermination.
15. The Owners Corporation also submitted that the offer was neither a real nor a genuine compromise and its refusal was reasonable.
16. The Owners Corporation submitted that the Calderbank offer made on 2 August 2022 contained no real element of compromise and merely invited capitulation by the Owners Corporation.
17. The submission of the Owners Corporation was that there is no basis on which the Appeal Panel would order costs on an indemnity basis as sought by the Caretaker.

Consideration

1. The facts and matters relevant to our decision as to whether there should be costs orders are the following: 1. We have determined that the Tribunal at first instance did not have jurisdiction to determine the application brought by the Owners Corporation. Jurisdiction was precluded by reason that the Caretaker had brought proceedings in the Supreme Court prior to the lodgment of the application in the Tribunal by the Owners Corporation. 2. The proceedings at first instance and on appeal were complex, both factually and in the legal issues that were raised, making it reasonable for the parties to engage solicitors and counsel. A fair reading of the decision at first instance and the two Appeal Panel decisions confirms that the proceedings, both at first instance and on appeal, were complex in respect of evidence to be considered and in the application of legal principles, and further the nature of the proceedings (involving the possible termination of a long-term caretaker agreement) was of significance to both parties. 3. Our second decision published on 27 October 2022 following the application of the Owners Corporation was determined on the basis that the application was upheld. Two grounds of appeal not earlier considered were determined adverse to the Caretaker. These two grounds should have been determined as part of our decision of 27 July 2022 because it was necessary to make clear that dismissal of the application lodged by the Owners Corporation at first instance was not the only order consequent upon the upholding of the appeal. The other possible order was remittal (being the order in fact made) but on the basis that the remitted proceedings would have to involve only allegations of fact not overlapping with the pre-existing Supreme Court proceedings. The point to be made is that the two Appeal Panel decisions should be viewed as proceedings that were determined in favour of the Appellant, namely the Caretaker. Similarly, the result of the appeals is that the final orders made at first instance have been set aside meaning that they have been resolved in favour of the interests of the Caretaker.
2. It is uncontroversial that orders for costs are not made to punish an unsuccessful party but rather to offer partial compensation to the successful party for expenses incurred in prosecuting or defending proceedings.
3. In the Tribunal the general position is that each party pays its own costs but the Tribunal has a discretion to award costs if it considers that there are special circumstances warranting an award for costs. Matters to be considered by the Tribunal in considering whether there are special circumstances are those listed in s 60 (the terms of which have been set out earlier).
4. The term "special circumstances" refers to circumstances that are out of the ordinary but they do not need to be extraordinary or exceptional: Megerditchian v Kurmond Homes Pty Ltd [2014] NSWCATAP 120. It is generally accepted that the Tribunal must not only determine that there are special circumstances but also that the special circumstances so determined warrant an award of costs: BPU v New South Wales Trustee & Guardian (Costs) [2016] NSWCATAP 87 at [9]. This principle arises out of the fact that s 60(2) provides that the Tribunal "may" award costs, meaning that the Tribunal has a discretion as to whether the special circumstances, if so found, warrant an award of costs.
5. We find that the nature and complexity of both the first instance proceedings and the appeal proceedings constitute special circumstances warranting an award of costs in favour of the Caretaker. The proceedings (both on appeal and at first instance) concerned complex factual issues and complex legal issues concerning whether the tribunal had jurisdiction to determine the dispute. These issues involved a consideration of issues before the Supreme Court as well as issues concerning whether the legislation permitting the tribunal to consider terminating caretaker agreements impacted the Caretaker Agreement between the parties given that it predated the relevant legislation. We find that these considerations constitute special circumstances and that a costs order is warranted both in respect of the appeals and the first instance proceedings.
6. The next question is whether the costs orders should be an order for costs on the ordinary basis or costs on the indemnity basis. Indemnity costs are awarded only in limited circumstances. The discretion to do so must be the subject of careful reasoning, and caution should be exercised in making such an award: see Mendonca v Tonna [2017] NSWCATAP 176. That decision described circumstances that may justify an indemnity costs order. One such circumstance is where a party has engaged in unreasonable conduct. The decision in Ashton v Stevenson; Stevenson v Ashton (No 2) [2019] NSWCATAP 238 dealt with the principles relevant to offers of settlement. Indemnity costs may be ordered if the offer contains a real element of compromise and its refusal can be found to have been unreasonable.
7. The basis for the Caretaker's submission that an indemnity costs order should be made with respect to the first instance proceedings was its letter to the Owners Corporation's representative dated 23 February 2021, being shortly after the commencement of the first instance application in the Tribunal. The offer was to the effect that the Owners Corporation should agree to have its application dismissed and, if so, the Caretaker would accept that only 50% of its costs then incurred would be paid by the Owners Corporation.
8. The critical question here is to address the principle referred to in the Mendonca and Ashton cases, namely whether there was a genuine offer of settlement which had been unreasonably refused. In our view, the refusal by the Owners Corporation to accept the offer of settlement was not unreasonable. The letter does not explicitly assert that the Tribunal has no jurisdiction to determine the application of the Owners Corporation and impliedly suggested that the Tribunal may have jurisdiction even though it would not usually interfere with commercial contractual relations. The jurisdictional point was not put in explicit terms making it unreasonable for the Owners Corporation to ignore the possibility of the application being dismissed by reason of cl5(7). What happened before may throw some light on the omission to refer to cl5(7). In submissions made prior to 12th February 2021 the Caretaker submitted that the tribunal did not have jurisdiction because of cl5(7).
9. On 12th February the tribunal dismissed the proceedings in so far as one of proposed orders (order 4) was concerned because of c l5(7) but otherwise the proceedings continued. The letter offering to settle followed about two weeks later.
10. We are not satisfied that the circumstances of the Owners Corporation's refusal to accept the offer was unreasonable justifying an order for indemnity costs to be made against it. It was not sufficiently clear in our view that cl5(7) continued to hang over the Owners Corporation making it unreasonable to refuse the settlement offer.
11. With respect to the costs of the appeal, the basis for the application for an award for indemnity costs arises out of the terms of the letter dated 2 August 2022, sent by the solicitors for the Caretaker to the solicitors for the Owners Corporation. That offer contained the following elements: that the Owners Corporation pay the Caretaker's costs of the appeals (ie. substantive appeal and costs-appeal) on the ordinary basis, that orders made by the Appeal Panel on 6 April 2022 and 26 May 2022 be vacated, that the Owners Corporation pay the Caretaker's costs of the Caretaker's stay application in the substantive appeal on the ordinary basis, that the costs order made at first instance on 28 March 2022 be vacated, that the Owners Corporation pay the Caretaker's costs at first instance and that the Owners Corporation pay the Caretaker's costs of the Owners Corporation's costs application in the first instance proceedings. The letter went on to say that if the Owners Corporation failed to accept the offer and if the Caretaker is successful on the issue of costs, then the Caretaker will rely upon the letter in an application that the Owners Corporation pay the Caretaker's costs on an indemnity basis.
12. We agree with the submission of the Owners Corporation that this offer involved no real element of compromise but merely invited capitulation by the Owners Corporation. In Bennette v Cohen (No2)[2009] NSWCA162 the Court expressed the view by reference to earlier authorities that schemes involving offers of compromise and cost consequences are intended to encourage resolution of litigation by settlement and that in doing so the offer must contain a real element of compromise.
13. In any event, the offer could only potentially have effect with respect to costs incurred after mid-August 2022. The costs incurred since that date relate to the slip rule application and the submissions on costs. However, we are of the opinion that the refusal by the Owners Corporation to accept that offer was not unreasonable. Accordingly, we decline to make an order for indemnity costs.
14. The Caretaker also made submissions concerning orders made in the appeal proceedings (by an Appeal Panel differently constituted) on 24 February 2022, 6 April 2022 and 26 May 2022 in connection with the Caretaker's application for a stay of the orders made at first instance. The Caretaker submitted that the cost orders were premised on the existence of the first instance decision and therefore need to be vacated. The Caretaker also submitted that it should be compensated for the cost of those contested applications.
15. It is not obvious to us why costs orders made against the Caretaker in respect of its unsuccessful stay applications should necessarily result in those orders being vacated. The Owners Corporation, having been successful at first instance, was entitled to resist the stay applications made by the Caretaker. It was not explained to us why costs orders were made as opposed to orders that costs incurred in those applications be costs in the cause and nor was it explained why the orders were made in error. We decline to set aside those orders.
16. We included in our directions a direction that the parties address the question of whether the Tribunal may determine the question of costs on the papers and dispense with a hearing of on costs. Neither side objected to that course and it is our view that we are able to adequately determine the issues concerning costs on the papers without the necessity for a hearing.
17. Having regard to the reasoning set out above, we make the following orders: 1. In appeals 2022/00035175 and 2022/00118800 and in the first instance proceedings SC21/02639 the Respondent is to pay the Appellant's costs on the ordinary basis as agreed or as assessed 2. Order 2 made on 28 March 2022 in SC21/02639 is set aside. 3. Other orders for costs made at first instance or in the appeals are not vacated by reason of these orders. 4. The Appeal Panel dispenses with a hearing on the question of costs.

I hereby certify that this is a true and accurate record of the reasons for Decision of the New South Wales Civil and Administrative Tribunal. Registrar I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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: 17 February 2023