The Craftsmen Restoration & Renovations v Thomas Boland; Thomas Boland v The Craftsmen Restoration & Renovations

JUDGMENT 1 HIS HONOUR: In this matter the principal judgment was delivered on 1 July 2008; see [2008] NSWSC 630. The proceedings were appeals arising from a building dispute before the Consumer, Trader and Tenancy Tribunal. The parties were referred to in the substantive judgment as "the owners", "the builder" and "the Tribunal". I shall continue to refer to them in that way as it should be obvious, even without reference to the earlier judgment, to whom reference is being made. Proceeding 30128 of 2006 was an appeal by the builder and proceeding 30130 of 2006 an appeal by the owners. The nature of the proceedings in this Court is fully considered in the principal judgment. The resolution of the appeals resulted in determinations not substantially different from that made by the Tribunal even though some of the reasons and the facts found differed from those of the Tribunal. 2 In brief, the determinations made on the hearing of the appeal were largely in favour of the owners. This was notwithstanding that they were in breach of the building contract by purporting to terminate the contract when they themselves had failed to meet one of its terms as to progress payments. However, because of poor workmanship by the builders, the owners were required to carry out substantial rectification work for which they were entitled to damages by way of compensation. The owners were also entitled to interest on the amount paid for that work. On the other hand the builder was entitled to progress payment no. 8 that the owners had refused to pay and monies retained by the owners under the contract with interest on both those sums. 3 The parties were requested to settle orders in accordance with the findings set out in the principal judgment. However, they were unable to agree on what those orders should be. It should be noted that there were obvious errors in the proposed orders submitted to the Court by both parties. There was a short hearing on 10 July 2008 when the matter was discussed and leave was granted to the parties to file submissions on outstanding matters including the question of costs and the calculation of interest. 4 An outstanding issue arising after the principal judgment was delivered was the date upon which interest on the damages was to be calculated. There was also a dispute as to the amount of interest due in respect of a retention sum of $11,705.90 to be paid to the builder in accordance with the contract. A further issue arising after the matter was reserved was the issue of set off. The question on costs related to whether the builders should be entitled to costs on an indemnity basis in light of offers of compromise made pending the hearing of the dispute before the Tribunal. None of these matters were addressed during the hearing of the appeals. 5 Submissions were filed from both sides and as late as 28 November 2008 final submissions were received from the owners. Even at this stage, as was the case throughout the course of the litigation, virtually every point was contested both as to the applicable principles and the findings that should be made by the Court. 6 I have been informed that the builder has appealed from the principal judgment but I am requested nevertheless to make final orders. Interest A. Damages 7 In effect the owners submit that the date for the calculation of interest should be the commencement of the proceedings being 6 August 2003, the date of the filing of a statement of claim in the District Court. The builder initially submitted that the Court should choose 15 January 2004 as an approximation of the date when the owners paid money to have the work rectified. 8 I expressed the view at the hearing in July that the interest for rectification work should be paid from the date the money for that work was expended but that I had little or no evidence about that matter and neither of the parties had addressed that issue in the submissions made following the delivery of the principal judgment. I expressed the opinion that the amount of damages to be paid to the owners by the builder should be $113,947.25 and there was no apparent opposition to that figure. 9 In light of what occurred on 10 July, the solicitor for the builder filed an affidavit dated 1 October 2008 to address matters that had been raised as to the calculation of interest. Annexed to that affidavit was a schedule drawn from the evidence as to the date of particular payments made by the owners and calculating interest on those payments. Where that date was unknown, a "median date" of 30 September 2002 was chosen. 10 However, in answer to that affidavit submissions were filed on behalf of the owners contesting that this was an appropriate means of determining the date for the calculation of interest and noted that some of the work occurred before the proceedings commenced, and as early as 2001. 11 In light of the continuing dispute between the parties as to what is the evidence as to payments and the proper basis for determining interest, and having regard to the submissions originally made in the proposed orders before the hearing of 10 July, I intend to untie the Gordian Knot in much the way that Theseus did by taking the bold course of slicing through the competing submissions and picking a date of 30 October 2003 (mid-way between 6 August 2003 and 15 January 2004). That seems to me to be an appropriate measure of justice between the parties, particularly having regard to the initial submissions made by both. B. Retention sum 12 The retention sum is governed by the terms of the contract. However, because of the way the matter proceeded, the builder having suspended works and the owners later purporting to terminate the contract, practical completion never occurred and a Final Certificate was never issued so that the preconditions for release of the money in accordance with cl 10.15.1 of the contract were never met. 13 The issue here is what interest rate applies to the retention sum under the contract. The builder claims that the contract was never completed because of the breach by the owners in refusing to pay progress payment 8. So, the builder argues, it is entitled to interest on the retention sum in accordance with the penalty provisions of the contract and item L of the appendix to the contract: see cl 10.5 of the contract. The owners claim that these provisions do not apply to the retention sum and that interest is due only in accordance with the interest earned on the joint account in which the retention money was held. 14 It was made clear at the hearing of 10 July that the Court intended to make the same order as the Tribunal made in respect of the retention sum, that is interest from 26 June 2002 "pursuant to the contract". However, there is now a dispute as to what that order would mean in terms of the interest payment because the parties have different views about what interest the contract allows on that sum. 15 This is not really a matter that comes within the terms of the appeals from the Tribunal but in order to try to bring some finality to this litigation I should indicate my view that the owners' argument should apply and that interest on the retention sum should be payable in accordance with the interest accrued on the sum in the joint account. I do not believe that cl 10.5 applies because there is no date upon which the payment of the retention sum was or should have been due. True it is that the pre-conditions for the payment of the retention sum never eventuated because of the breach of contract by the owners, but there is no provision of the contract dealing with that situation.

Costs 16 The issue on the question of costs is whether, notwithstanding the success of the owners both before the Tribunal and on appeal, the builder should have the benefit of an order for costs on an indemnity basis having regard to the principles that have arisen in respect of, what are referred to as, Calderbank offers. It is accepted that the Court's adjudication is less favourable to the owners in the final result than an offer made by the builder during the proceedings before the Tribunal and rejected by the owners. 17 There is little doubt about the jurisdiction of the court to grant the order sought by the builder. It is a discretionary decision and there is no general principle that the rejection of the offer will entitle the offeree to costs on an indemnity basis: Jones v Bradley (No 2) [2003] NSWCA 258 at [8]. The test is whether the failure to accept the offer in all the circumstances of the case warrants a departure from the ordinary rule that costs follow the event: SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37]. The party seeking an order for indemnity costs has the burden of showing the court why such an order should be made in its favour and generally this means that it should persuade the court that the refusal to accept the offer was unreasonable: Evans Shire Council v Richardson [2006] NSWCA 61 at [26]. The simple fact that the offeree ends up worse off than had the offer been accepted does not mean that the refusal was unreasonable: SMEC Testing Services Pty Ltd above. There are usually two matters that indicate whether the rejection of the offer was unreasonable: whether the amount and/or the terms of the offer is seen as genuine; and whether the time during which the offer is open is reasonable. 18 The owners commenced proceedings in the District Court on 6 August 2003. On 12 August 2003 the builder commenced proceedings before the Tribunal and, as a consequence, the owners' proceeding in the District Court was transferred to the Tribunal. 19 On 15 December 2003 the builder made an "offer of compromise" which was in effect the sum of $28,348.03 inclusive of interest and costs, being the difference between the outstanding amount under the contract of $22,211.97 and "allowances" of $50,560 for various rectification work or losses suffered by the owners. The offer was open until 18 December 2003. The offer indicated that, if it were not accepted, it would be tendered on the question of costs. No reply was received from the owners. 20 On 22 March 2004 the builder made a further offer to the owners, this time in the sum of $57,788.03. This offer was based upon an increase in the allowance for the owners' claims, from $50,560 to $80,000 from which was deducted the balance of the monies payable under the contract being $22,211.97. The payment was subject to release by the owners of the sum of $11,705.90 from the retention fund with interest on that sum. There was the threat that, if the offer were not accepted, it would be used on the issue of costs. 21 On 26 March 2004 the owners' solicitor replied indicating that the offer was "incapable of acceptance" and noted that the builder had not filed an amended defence to the owners' amended points of claim and that this has "had a significant impact on our client's ability to assess the litigation risk in the context of your client's offer". There were, however, some points of clarification sought by the owners as to the manner in which the offer had been determined. 22 The builder's solicitor answered this letter on 30 March 2004 and the effect of the increase in the offer was explained as being a net payment to the owners of $57,788.03 after payment of the retention sum and the progress payment. There was a "fresh offer" attached in the same terms as that of 22 March with an extended period for its acceptance until 2 April 2004. This was no response to this further offer. 23 On 8 December 2004 the builder made a further offer with an increase in the sum payable to the owners from $57,788.03 to $127,788.03. That was an "allowance" of $150,000 less $22,211.97 being the retention monies and the outstanding progress payment. The offer was open for 7 days to expire on Wednesday 15 December 2004. 24 On 14 December 2004 the solicitor for the owners asked for an extension to consider the offer until 17 December 2004. The extension was granted. 25 On 17 December 2004 the owners requested information as to whether a refund for the windows was included in the offer and the amount allowed for that item. On the same day the builder's solicitor indicated that the offer was "in full and final settlement of all claims". There was no further reply to the offer. 26 The owners point out that there are no applicable rules relating to compromise in the proceedings before the Tribunal. They also note that the offer was made in respect of the proceedings before the Tribunal and not in respect of the appeal. They do accept that the offers of the builder should be considered against the principles that have been established for Calderbank offers. However, they point out that the offers did not refer to Calderbank or indicate that indemnity costs would be sought: see SMEC Testing Services, above. However the offers made it clear that they would be used on the question of costs, and it seems to me that they were obviously intended to be Calderbank offers especially as there were no relevant rules as to compromise. 27 The owners concede that they were no better off after the judgment of the Tribunal and the builder in his submissions points to the significant difference between the final offer and the Tribunal's award. However, the owners note the following: the time frame for accepting the offer was only 7 days; the offer did not indicate how the amount on offer of $150,000 was derived; there was a double counting of the retention sum; and the offer required that Trend recover the doors yet the owners had paid for the doors and the builder had received a refund. Finally the owner notes that the offer required the owner not to make any claims on the home warranty insurer. 28 In my opinion having regard to the substantial difference between the amount awarded before the Tribunal and the offer of $150,000 and all the surrounding circumstances the refusal of the offer was unreasonable. I believe that it was a genuine offer of compromise. Even taking into account the matters of which complaint is now made, the owners would have been very significantly better off taking the offer. No question was raised about any of the matters now suggested as difficulties with the offer at the time of the offer. The 7 days was adequate in view of the fact that the offer of $150,000 was the third offer and the time was extended to allow the owners to have legal advice. The offer was made before the conclave of experts was due to meet and well in advance of the hearing date. 29 The owners should pay the costs of the builder before the Tribunal from 17 December 2004 on an indemnity basis. 30 However no further offer was made after the Tribunal made its decision and during the hearing of the appeal. Although the owners are still worse off, they have improved their position and succeeded in part on their appeal. The builder's appeal was dismissed. The owners were entitled to seek to correct errors by the Tribunal by way of appeal. In Road and Traffic Authority of NSW v Turner (No 2) [2008] NSWCA 241 at [7], the Court stated the following:

At a glance

Court

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Judgment (23 paragraphs)

Cases Cited (5)

Cited By (2)