The Owners - Strata Plan 20211 v Rosenthal; Rosenthal v The Owners - Strata Plan SP 20211 - [2019] NSWCATAP 49 - NSWCATAP 2019 case summary

NCAT Appeal Panel|2019-03-06

REASONS FOR DECISION

On 15 October 2018 we published our reasons in two appeals from decisions in the Consumer and Commercial Division of the Tribunal relating to a dispute between Mr and Mrs Rosenthal, owners of lot 64 in Strata Plan 20211, and The Owners - Strata Plan 20211.
AP 17/41893 was the appeal by the Owners Corporation (the OC) against orders made under the Strata Schemes Management Act 2015 (the SSM Act) on 29 August 2017 requiring it to carry out work and to pay compensation. AP 18/0172 was the appeal by Mr and Mrs Rosenthal (the Owners) against the orders made on 24 November 2017 dismissing their application for costs of the proceedings.
Our reasons for decision explain the background to the dispute, and our reasons for varying the orders made in the substantive proceedings and for dismissing the appeal against the costs decision: The Owners - Strata Plan SP20211 v Rosenthal; Rosenthal v The Owners - Strata Plan SP20211[2018] NSWCATAP 243.
In AP 17/41893 the Owners are seeking an order that the OC pay their costs of the appeal. The OC is seeking an order that each party pay their own costs until 6 March 2018, and that the Owners pay the OC's costs thereafter. That position is based on the offer made to the Owners by the OC in a letter dated 12 April 2018. That letter repeated an offer made in a mediation held on 6 March 2018, between the first day of hearing of the appeal (5 February 2018) and the second day of hearing (16 April 2018).
The OC is seeking its costs of the appeal in AP 18/0172; the Owners seek an order that each party pay their own costs of that appeal.
The parties were directed to provide written submissions as to costs, including submissions as to whether the Appeal Panel should dispense with a hearing pursuant to s 50 of the Civil and Administrative Tribunal Act 2013 (the NCAT Act).

Whether a hearing should be dispensed with

Both parties agreed that the question of costs of the appeals could be determined on the basis of their written submissions. The Appeal Panel is satisfied that the issues for determination can be adequately determined in the absence of the parties by considering the parties' written submissions and accordingly we make an order pursuant to s 50(2) dispensing with a hearing.

Relevant legislation

Section 60 of the NCAT Act provides: 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.
Rules 38 and 38A of the Civil and Administrative Tribunal Rules 2014 (the Rules) provide: 38 Costs in Consumer and Commercial Division of the Tribunal (1) This rule applies to proceedings for the exercise of functions of the Tribunal that are allocated to the Consumer and Commercial Division of the Tribunal. (2) Despite section 60 of the Act, the Tribunal may award costs in proceedings to which this rule applies even in the absence of special circumstances warranting such an award if: (a) the amount claimed or in dispute in the proceedings is more than $10,000 but not more than $30,000 and the Tribunal has made an order under clause 10 (2) of Schedule 4 to the Act in relation to the proceedings, or (b) the amount claimed or in dispute in the proceedings is more than $30,000. 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.

Costs in AP 17/41793

In proceedings SC 16/55860 the Tribunal had ordered the OC to undertake work to correct sources of water ingress to lot 64 including replacement of the waterproof membrane on level 20 (the rooftop); to replace the fire rated front door; and to pay the Owners compensation for damage caused by water ingress in the amount of $8,793.49.
As discussed in our reasons on the appeal from that decision, the contest between the parties included issues as to whether the water ingress originated from the common property, and whether previous by laws had authorised certain works undertaken by prior owners of lot 64 so as to transfer responsibility to the owners of lot 64. The OC accepted that some elements of the work order should stand. There was a further contest as to the compensation order, in particular whether the Member had erred in finding that by reason of s 106(5) of the SSM Act the Tribunal had jurisdiction to award damages, and the effect of the decision of the Appeal Panel in The Owners Strata Plan No 30621 v Shum [2018] NSWCATAP 15. The outcome of the appeal was that the orders made below were varied, including to vary the order to replace the waterproof membrane to require replacement around lot 64 and not the entire membrane on level 20, and to reduce the amount of compensation ordered to reflect an assessment of the damage cause by water ingress after 30 November 2016 when the SSM Act came into effect.
It was common ground that as "the amount claimed or in dispute" in the proceedings was below $30,000, the applicable costs provision is s 60, and the Tribunal may only award costs of this appeal if satisfied that there are special circumstances warranting an award of costs.
The term "special circumstances" is not defined in the NCAT Act. It has been interpreted to mean circumstances that are out of the ordinary but not necessarily extraordinary or exceptional: Megerditchian v Kurmond Homes Pty Ltd [2014] NSWCATAP 120. As summarised in Kadsielski v Guca 1 Pty Ltd [2018] NSWCATAP 223: 14. First, special circumstances are circumstances that are out of the ordinary, they do not have to be extraordinary or exceptional: see for instance CPD Holdings Pty Ltd t/as The Bathroom Exchange v Baguley [2015] NSWCATAP 21. It suffices if the circumstances are "out of the ordinary": Ingate v Andrews [2018] NSWCATAP 170. 15. Secondly, each case depends upon on its own particular facts: Gizah Pty Limited v AXA Trustees Limited (No. 2) [2001] NSWADT 164, and will depend on the circumstances of the individual case: Brunsprop Pty Ltd v Joanne Hay & Wes Davies [2015] NSWCATAP 152. 16. Thirdly, the discretion to award costs must be exercised judicially and having regard to the underlying principle that parties to proceedings in the Tribunal are ordinarily to bear their own costs: eMove Pty Ltd v Naomi Dickinson [2015] NSWCATAP 94.

The Owners' submissions

The Owners submit that a costs order should be made in their favour because: 1. The OC's appeal was largely unsuccessful and the areas where the appeal was upheld could not be seen to be significant in terms of the orders sought by them below; 2. The findings in relation to replacement of the entire waterproof membrane on level 20 were conceded by the Owners; 3. The error identified in the findings as to compensation under s 106(5) had to be viewed in the context of the main issues, where the Owners were seeking mandatory orders to compel the OC to carry out their statutory duty; 4. The Owners were compelled in the first instance to commence proceedings and the propositions of the OC as to the responsibilities of an Owners Corporation to repair and maintain were untenable; 5. Opposing the appeal required the Owners to reconsider the complex proceedings and answer the grounds of appeal which required largely re-running the proceedings below. The proceedings were complex, which is a special circumstance, and were determined absent any definitive appeal findings in relation to the damages provisions; 6. The points articulated on appeal by the OC arising from Shum were not raised in the submissions below, and the appeal was pressed on the non-retrospectivity of the damages provisions; 7. It was abundantly clear on the expert evidence that the membrane required replacement, and the OC continued to resist repair and maintenance obligations, continuing through the appeal process; 8. Propositions put by the OC relating to the replacement of the fire door and the membrane were untenable; 9. It is out of the ordinary for an Owners Corporation to refuse to repair and maintain property pursuant to its statutory obligations and continue to do so through the appeal process; and 10. The nature of water ingress outlined in the Tribunal gives rise to an apprehension that water damage would continue unabated absent the OC carrying out rectification work.
The Owners oppose the OC's application for its costs after 6 March 2018, submitting that the reference to the settlement offer made at mediation should be disregarded, as an impermissible breach of the confidentiality of the mediation. The Owners submit that if those references are permissible, it was not unreasonable for them to reject the offer as it was equivocal; there was limited success by the OC; the offer to replace the fire door was merely an offer to carry out its obligations; and the time to consider the offer was unreasonable. There was no unnecessary prolonging of the proceedings by the Owners.

The OC's submissions

The OC submits that each party should pay its own costs up to and including 6 March 2018 and the Owners should pay its costs thereafter. The substantive appeal was hard fought and the OC had a substantial measure of success albeit not complete success on all issues. There are no special circumstances justifying a costs order, subject to the matter of the OC's offer of 6 March 2018 made at mediation, and repeated in the letter of 12 April 2018.
The OC submits that non-acceptance of a Calderbank type offer is capable of amounting to special circumstances: Mrjana v Imagine Education Australia Pty Ltd [2016] NSWCATAP 232. In a comparison of the offer with the outcome of the appeal: 1. the OC had already offered to replace the waterproof membrane and the failure to accept the offer unreasonably prolonged the proceedings; 2. the OC had set out why it was confident of succeeding in the appeal in relation to the orders regarding the main bedroom wall and the level 20 bedroom, as it ultimately was; 3. the OC had already offered to replace the fire rated door; 4. the OC offered a payment of $10,000 as damages and/or costs at a time when the Owners had the benefit of a damages award of $8,793.49 and no order as to costs, and the appeal has reduced the damages award to $900 and the costs appeal was not allowed; 5. the failure of the Owners to engage with the OC's efforts to reach a sensible compromise of the issues in the appeal unreasonably prolonged the proceedings.
The OC opposes an order for costs being made in favour of the Owners. The proceedings were not especially complex; there was no adverse finding below or on appeal in relation to any particular conduct of the OC, which simply pursued its rights to have the dispute resolved; and in any event such circumstances apply in practically every contested case and are by their nature not special.

Discussion and findings

We accept that the issues raised in the proceedings were complex, requiring the Tribunal to address by reference to the history of work done by prior owners, the by-laws, and the expert evidence, where the responsibility for the water ingress lay. While some of the issues raised on the appeal required detailed examination of those questions, complexity is not of itself a special circumstance. The appeal required consideration of the decision in Shum, in the context where the Tribunal below had not, because of the state of the law at that time, been required to consider which part of the asserted damage occurred after 30 November 2016. We note that neither party has taken issue with the approach we adopted at paragraph [79] of our decision in determining the amount to be awarded for the cost of rectification work for bedroom 3. The ultimate outcome of the substantive appeal can be characterised as mixed, the OC succeeding in reducing its liability for replacement of the waterproof membrane to that part around lot 64, and in reducing the amount of compensation payable following Shum. While neither party achieved complete success, none of the grounds of appeal or the responses made could be said to be untenable. There is nothing in how the appeal was conducted that could justify a conclusion that either party unnecessarily disadvantaged the other, or unreasonably prolonged the proceedings.
The Owners submit that their application was required to obtain orders to compel the OC to carry out its statutory duty. As the Tribunal below concluded, it is in the nature of litigation for one party to act contrary to what the other believes is their legal obligation, with the consequent disagreement forming the basis of the action. In the context of a history of works by prior owners and a dispute as to whether any of that work was authorised so as to shift responsibility to the owners of lot 64, there is nothing in the circumstances of this appeal from the Tribunal's findings that could be fairly described as out of the ordinary or unreasonable so as to warrant an order for costs.
We do not consider that the letter of 12 April 2018 changes that conclusion. In Mrjana the Appeal Panel commented: 74. Lastly, we do not accept that the so-called offers made by the respondent and the failure of the appellant to accept such offers itself otherwise constitutes special circumstances warranting an award for costs. There has been no determination of the appellant's claim on its merits. The "without prejudice" offer is no more than an offer inviting withdrawal of the proceedings at first instance at threat of a claim for legal costs if not accepted, which offer was made in circumstances where no leave had been granted for legal representation. The failure to accept the offers could not be said to be unreasonable in the circumstances of this case: see eg Miwa Pty Ltd v Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344 at [10] and following for considerations relevant to Calderbank Offers and orders for costs where offers are not accepted.
In Miwa Pty Ltd v Siantan Properties Pte Ltd (No. 2) [2011] NSWCA 344, 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.
Even assuming that it was appropriate for the OC to disclose the offer made at the mediation on 6 March 2018, and on the basis that the letter of 12 April 2018 should be read as itself constituting an offer which if not accepted could constitute special circumstances warranting an order for costs, we are not satisfied that it was unreasonable for the Owners to refuse it. There was some, but not complete compromise, and in relation to the most significant part of the work order (replacement of the waterproof membrane), the ultimate outcome reflected the position put by the Owners at the appeal hearing. The Owners were given one day to accept the offer which, even allowing for what could be assumed to have been familiar ground after the mediation, could not be regarded as a reasonable period of time.
The starting point for consideration is s 60(1), that each party is to pay its own costs. We are not persuaded that there are special circumstances warranting an award of costs in favour of either party, and there is no order as to costs.

Costs of AP 18/0172

The OC seeks an order that the Owners pay its costs of the appeal against the decision of the Tribunal below to dismiss the Owners' application for costs of the first instance proceedings. The OC submits that the costs appeal should never have been brought, and the costs submissions below were hopeless. The hopeless nature of the appeal unnecessarily disadvantaged the OC, prolonged the costs appeal unreasonably; had no tenable basis in fact or law; and was lacking in substance.
The Owners submit that each party should bear its own costs in relation to the appeal against the costs decision, there being no special circumstances to militate against such an order. The costs submissions below were appropriate, the appeal point was arguable and not hopeless having regard to the necessity for the Owners to commence proceedings to compel the OC to carry out its statutory duty. While the appeal was unsuccessful it could not be said to lack substance.
Whatever may have been the view taken by the Tribunal of the submissions on costs below, the issue is whether there are special circumstances warranting an order for costs of the appeal. In these circumstances, costs do not follow the event, and the mere fact that the appeal was unsuccessful is not of itself a special circumstance warranting an order for costs. There was nothing about the bringing of the appeal or its conduct by either party that could in our view constitute unnecessarily disadvantaging the other party to the proceedings, or prolonging unreasonably the time taken to complete the hearing of the appeal.
We are not persuaded that there was anything out of the ordinary in the costs appeal such as to conclude that there are special circumstances warranting an order for costs in favour of the OC. The appropriate order is, as required by s 60(1), that each party pay its own costs.

Orders

The orders of the Appeal Panel are: 1. A hearing on costs is dispensed with under s 50(2) of the Civil and Administrative Tribunal Act 2013. 2. Appeal AP 17/41893: No order as to costs and each party is to pay its own costs. 3. Appeal AP 18/00172: No order as to costs and each party is to pay its own costs.

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: 06 March 2019

The Owners - Strata Plan 20211 v Rosenthal; Rosenthal v The Owners - Strata Plan SP 20211

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