The Owners - Strata Plan 89023 v AT Building Pty Ltd - [2019] NSWCATAP 171 - NSWCATAP 2019 case summary

NCAT Appeal Panel|2019-03-29

REASONS FOR DECISION

The parties were in dispute concerning defects in a home unit development in Mowbray Road, Lane Cove, New South Wales. The appellant is the Owners Corporation for Strata Plan 89023 (the Owners) and the Respondents are the Builder and Developer respectively, referred to collectively as the Builders.
The Builders accepted that there were defects requiring rectification before the Owners commenced proceedings in the Consumer and Commercial Division of the Tribunal. What was really in dispute initially was the extent (or scope of works) of the obligation to rectify, and then in the proceedings, the terms of a Work Order. An issue in the substantive proceedings was whether any, and if so which, of the defects were other than major defects and thus statute barred by operation of s 18E(1)(b) of the Home Building Act 1989.
There were two proceedings heard and determined in the Consumer and Commercial Division. The Owners' claim against the Builders was HB 15/61109, and a separate claim by the owners of Lot 2 in SP 89023 was matter HB 15/61285. Those separate proceedings were dismissed, and there is no appeal in relation to that matter.
In proceedings HB 15/61109 the parties' experts identified defects in a Joint Scott Schedule. Most of the building defects were found to be statute barred. Most of the fire safety defects, which were raised late in the hearing process, were held to be major defects, and were not barred. Most of the significant areas of the initial dispute were decided in the Builders' favour. On 31 July 2018 the Builders were ordered to carry out rectification works as specified in the Joint Scott Schedule.
The parties then sought orders for costs. It is the Tribunal's costs decision of 13 December 2018 which is the subject of this appeal. The order of the Tribunal was as follows: 1.The respondent, A T Building Pty Ltd and Mowbray Road Pty Ltd as trustee for Mowbray Unit Trust is to pay the applicant, The Owners Strata Plan No 89023, costs of the proceedings up to 27 September 2016 on the ordinary basis; and 2.The applicant, The Owners - Strata Plan No 89023, is to pay the respondent A T Building Pty Ltd and Mowbray Road Pty Ltd, as trustee for Mowbray Unit Trust, from 28 September 2016 costs on an indemnity basis; as agreed or assessed.

Availability of appeal

The Appeals Panel's jurisdiction is found in section 80 of the Civil and Administrative Tribunal Act 2013 (NSW)(CAT Act).
The section relevantly provides: 80 MAKING OF INTERNAL APPEALS (1) An appeal against an internally appealable decision may be made to an Appeal Panel by a party to the proceedings in which the decision is made. Note : Internal appeals are required to be heard by the Tribunal constituted as an Appeal Panel. See section 27 (1). (2) Any internal appeal may be made: (a) … (b) in the case of any other kind of decision (including an ancillary decision) of the Tribunal at first instance--as of right on any question of law, or with the leave of the Appeal Panel, on any other grounds….
A decision concerning the awarding of costs in proceedings is an "ancillary decision" of the Tribunal. In Islam v Metricon Homes Pty Ltd [2018] NSWCATAP 116 the Appeal Panel held: 11.As the costs order involved the exercise of a discretion given to the Tribunal under s 60 of the NCAT Act, the appellant needed to demonstrate an error in the House v The King sense. Such an error may be demonstrated if the Tribunal acted on a wrong principle, made a material error of fact, failed to have regard to material considerations or reached a conclusion which was, on the facts, "unreasonable or plainly unjust": House v The King [1936] HCA 40; 55 CLR 499 at 505; Micallef v ICI Australia Operations Pty Ltd [2001] NSWCA 274 at [45] (Heydon JA; Sheller JA and Studdert AJA agreeing).

Grounds of Appeal

The appellant relies on five grounds of appeal (four being alleged errors of law for which no leave is required, and one which requires leave). All five grounds refer to the following "Relevant Considerations": 1. The offer in Calderbank 1 was made on the basis that the parties pay their own costs; 2. In the alternative, the offer in Calderbank 1 was made on the basis and at a time that the Respondents had not served their evidence in chief; 3. In the alternative, the offer in Calderbank 1 was made without any proper explanation of the differentiation between asserted major defects and non-major defects; 4. In the alternative, the offer in Calderbank 1 was made without proper explanation of how the proposed work orders would be performed by the Respondents; 5. In the alternative, the offer in Calderbank 1 was not clear and precise as to its terms.
The Grounds of Appeal are: 1. That the Tribunal erred in law: 1. by failing to take into account the Relevant Considerations in relation to the offer, or gave them insufficient weight in exercising its cost discretion (Ground 1); 2. by reason of the Relevant Considerations, in exercising its discretion where there was no evidence to support the finding that rejection of the offer was unreasonable (Ground 2); 3. by reason of the Relevant Considerations, in finding that the rejection of the offer was unreasonable, the Tribunal made a decision so unreasonable than no reasonable decision maker would have made it (Ground 3); 4. by reason of the Relevant Considerations, the Tribunal made an error of the kind identified in House v The King [1936] HCA 40 on the following grounds: 1. the Tribunal made a material error of fact in finding that the Owners' rejection of Calderbank 1 was unreasonable; 2. in the alternative, the Tribunal failed to have regard to material considerations (being the Relevant Considerations) in finding that the Owners' rejection of Calderbank 1 was unreasonable; 3. in the alternative, the finding that the Owners' rejection of Calderbank 1 was unreasonable, was, on the facts, unreasonable or plainly unjust. 1. That the Tribunal, by reason of the Relevant Considerations, in making the costs orders erred in fact in exercising its discretion in finding that rejection of Calderbank 1 was unreasonable (Ground 5, for which leave is required).

The Decision under Appeal

Before the proceeding commenced in November 2015 the Builders had accepted certain rectification obligations. After the proceedings were instituted there were 12 directions hearings. The Builders' solicitor made a detailed Calderbank offer to settle the proceedings by letter dated 28 September 2016. The letter identified building defects which the Builders agreed to rectify, including some on a commercial basis as part of the Calderbank offer, and building defects which the Builders did not agree to rectify; fire safety defects which the Builders agreed to rectify, and fire safety defects the Builders did not agree to rectify; and items requiring further investigation by the Builders, for which they required access to the property. The Builders offered to consent to Work Orders in relation to the defects they agreed to rectify, and that each party should pay their own costs. The offer was open for acceptance until 27 October 2016.The Owners rejected the offer.
The costs decision below referred to the parties' submissions and in particular to the Builder's submissions concerning the factors required to be taken into account in the costs application as referred to in the case of Hazeldene's Chicken Farm Pty Ltd v Victorian Workcover Authority (No.2) [2005] VSCA 298 which related to whether a Calderbank offer was unreasonably rejected. Reference was also made to the Owners' submissions referring to the case of SMEC Testing Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37] relating to the issue of whether a failure to accept a Calderbank offer in all the circumstances warrants a departure from the ordinary rule as to costs i.e. that they follow the event. The offeree ending up worse off does not automatically dictate the result.
At paragraph [22] of his written reasons the Member confirmed that as the claim by the Owners exceeded $30,000, rule 38 of the Civil and Administrative Tribunal Rules 2014 applied and the Tribunal did not need to find special circumstances in order to make a costs order. The Member noted at paragraph [24] that the Tribunal would ordinarily make a costs order against the Builders in favour of the Owners as the circumstance would be that costs would follow the Owners' success in the proceedings. The Member continued: 25 However, the Tribunal must consider what effect the builders' Calderbank letter offers have on the appropriate costs order. 26 The Calderbank letter offer of 28 September 2016 comprehensively covers the considerations in Hazeldene's Chicken Farms. The offers of 30 June 2017 and 1 December 2017 less so. 27 The ultimate final orders of the Tribunal dismissed most of the alleged building defects as being statute barred as outside the warranty period for non-major defects. Most of the fire safety defects were allowed by the Tribunal as major defects and were not barred. The Tribunal made the appropriate Work Order not compensation that the owners sought. 28 A significant proportion of the hearing time was devoted to argument about non-major defects, which were decided to be time barred under the Home Building Act. 29 The Calderbank letter offer of 28 September 2016 set out reasons why the proceedings should be compromised in detail. The letter offered the builders consent to rectify defects and that each party would pay their own costs. The defects the builders proposed to be rectified included all of the building defects ultimately ordered to be rectified by the Tribunal and most of the fire safety defects plus additional rectification of defects that the Tribunal did not order. 30 The owners contend that the builders Calderbank letter offers should contain an acknowledgement that the owners were justified in commencing the proceedings and that the owners' costs should be paid. Also, a successful Calderbank letter offer does not automatically result in a costs order of a different nature to that which follows the event. As the builders had not served their evidence when the offer was made it was not reasonable for the owners to alter their position on the question of particular defects as they were unable to assess the prospects of the builders' case. 31 Despite the offer not addressing the differentiation between asserted major and non-major defects, the Tribunal is satisfied that had the owners accepted the builder's offer of 28 September 2016; the owners would have been a considerably better position than they would have been in rather than is ultimately the case. 32 The rejection and non-acceptance by the owners of the builders' Calderbank letter offer of 28 September 2016 was unreasonable. The factors of reasonable acceptance in Hazeldene's Chicken Farms are satisfied by the letter. The offer was received at an early stage of the proceedings. The offer was open until 28 October 2016 a reasonable time for the owners to consider acceptance. It was a real and genuine compromise and far more favourable than the ultimate result. The terms of the offer were expressed clearly and the offer foreshadowed an application for indemnity costs if the offer was rejected. It was unreasonable and wasteful for the owners to reject the offer. 33 The appropriate order must take into account that the owners until 27 September 2016 are entitled in the ordinary course to their costs against the builders as they were successful in obtaining some of the orders they sought. However, as the Tribunal has found that builder's offer was unreasonably rejected by the owners, then the builder ought to be indemnified for their costs by the owners from 28 September 2016.
The Tribunal made its finding in relation to the Calderbank offer in paragraph [32] of its decision referring to all the matters in Hazeldene except the Owners' prospects of success at the date of the offer. However, at paragraph [29] the Member refers to the letter offering to rectify all of the building defects ultimately ordered rectified by the Tribunal, and most of the fire safety defects, plus additional rectifications not the subject of the final order. We read this as the Tribunal weighing up the Owners' prospects of success, and finding they were not strong.

Ground 1

The Owners contend that the Tribunal fell into error by failing to consider all the Relevant Considerations (see paragraph [10] above).
As to the service of evidence, the Owners contends that the Builders presented a different case at the trial than that previously asserted by it, and thus that there was a significant change in circumstances. This is not apparent from the Tribunal's decision, or from the parties' submissions. The fire safety defects were found by the Tribunal to have been "lately raised" (par [19(5)] of decision) (we assume by the Owners) and might be the only material difference to the Builders' case. We are not convinced there was a change in circumstances that could be seen as 'significant'.
The Builders say in reply that: 1. the failure to take into account any particular matter is not necessarily an error of law 2. the failure to accord appropriate weight to a particular factor is not of itself an error of law 3. in any case the relevant considerations were identified and expressly referred to in the Tribunal decision.
The policy behind the Calderbank principle is to encourage the early settlement of litigation in order to reduce the cost, time and stress of litigation.
The Tribunal referred to the Owners' submission that the making of a Calderbank offer before the service of the Builders' evidence meant that it was reasonable to reject the offer as the Owners could not assess the strength of the Builders' case (at [30]).
However, it would be perverse to require the Builders to go to the trouble and expense of preparing, filing and serving its evidence before its Calderbank offer could be accepted. This is particularly the case here where the Builders had already accepted obligations to rectify certain defects. It was then really a matter of agreeing the details.
In our view the Tribunal considered and accorded appropriate weight to this consideration and did not fall into error.
The Owners say that it was not being unreasonable in rejecting the Calderbank offer which made no provision for payment of any of its costs. It says that the Builders were obligated to justify their stance on costs in the offer.
The Builders respond by saying that it had been prepared to rectify the defects mentioned in the Calderbank offer without resort to litigation.
Further the Builders say that the offer was effectively on the basis of being inclusive of costs, and that this is a customary way of framing a Calderbank offer.
Although it is not relevant to the question of whether the rejection of the Calderbank offer was unreasonable, because this must be judged at the time the offer was made, we do note that the Tribunal ordered the Builders to pay the Owners' costs up to the date of the Calderbank offer.
The Calderbank offer as to costs was only one factor to be considered. In the circumstances where the Builders had accepted certain liabilities before the Calderbank offer and indeed before the proceedings commenced, it is our view that there was no error by the Tribunal. It was open to the Tribunal to find it was unreasonable for the Owners to reject the offer in all the circumstances.
The Owners says it was justified in rejecting the Calderbank offer as the letter failed to provide a basis or reasons why major and non-major defects were not differentiated.
The Builders' reply is that it had no obligation to do so, and in any case the position was reasonably clear as to the differences on the Owners' own evidence. It also says there was an explanation in the letter of the basis for its approach to various defects. It relied on Miwa Pty Ltd v Siantan Properties Pte Ltd (No.2) [2011] NSWCA 344 at [13] as authority that no explanation needs necessarily to be given.
The Tribunal recognised that the Calderbank offer did not differentiate between major and non-major defects. Even so it found that the Owners would have been in a considerably better position if it had accepted the offer rather than pressing on to the hearing.
We agree with the Builders' submissions. The Owners were in a position to know what the Builders' offer covered so far as agreement to consent to Work Orders was concerned.
The Owners' argument that there were insufficient details concerning how the Work Orders proposed in the Calderbank offer would be performed is without any real merit. The detailed terms of the Work Orders were matters to be negotiated between the parties, or if necessary determined by the Tribunal.
The same considerations apply to the Owners' argument is that there was insufficient clarity to the terms of the Calderbank offer. The Owners did not seek any clarification at the time when they could have.
There was no error of law in the Tribunal finding that the terms were expressed clearly (at [32]).

Ground 2

The evidence before the Tribunal included the pre litigation correspondence showing willingness of the Builders to undertake rectification works; the Owners claims for defects both major and non-major; the procedural background; and the detailed terms of the Calderbank letter. As the decision on costs involves a comparison of the end result of the litigation with the terms of the Calderbank offer, inevitably an element of hindsight is present in the decision making on the costs question, and thus the Tribunal had the benefit of its involvement in the proceedings.
In our view there was sufficient evidence to enable the Tribunal to find that the Owners unreasonably rejected the Calderbank offer. It took account of the various relevant considerations mentioned in the decision and applied them to the facts. We are unable to accept that the exercise of the discretion was either unreasonable or unjust in all the circumstances.

Ground 3

The Owners have not made this ground out. Given the facts, the submissions from both sides, and the end result of the proceedings, we consider that the costs decision was quite open to the Tribunal, and could in no way be characterised in the way pleaded by the Owners.

Ground 4

In relation to Ground 4 the appellant submits that the Tribunal fell into an error of the kind referred to in House v The King in the exercise of its discretion in relation to costs.
In House v The King [1936] HCA 40; (1936) 55 CLR 499 it was said that: The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.
The Owners said that the Tribunal made an error of fact by finding they unreasonably rejected the offer, or it failed to consider all material matters, or that its decision on costs was "unreasonable or plainly unjust": Prendergast v Western Murray Irrigation Ltd [2014] NSWCATAP 69.
The Owners' submissions do not identify with precision what the mistake of fact was. They rely on their earlier submissions to enumerate the relevant considerations or material matters which were not considered. We have dealt with these earlier. We are not persuaded the Tribunal was in error. We reject the submission as regards the House v The King contention. We do not consider the decision was unreasonable or plainly unjust to the standard needed to find error of law. The decision was open to the Tribunal which had taken account of all relevant matters.
Accordingly we find that there was no error of law.

Ground 5

As for the Owners' Ground 5, no question of law is asserted to arise. Section 80(2) CAT Act provides for such internal appeals to require the leave of the Appeal Panel.
Where the first instance decision is made in the Consumer and Commercial Division of the Tribunal cl 12 (1) of Schedule 4 of the CAT Act limits the ability of the Appeal Panel to grant leave to cases where the Appeal Panel is satisfied that the appellant may have suffered a substantial miscarriage of justice on the basis (relevantly) that: 1. the decision of the Tribunal under appeal was not fair and equitable; or 2. the decision of the Tribunal under appeal was against the weight of evidence.
In Collins v Urban [2014] NSWCATAP 17 at [76] it was said that a substantial miscarriage of justice may have been suffered where: "there was a "significant possibility" or a "chance which was fairly open" that a different and more favourable result would have been achieved for the appellant had the relevant circumstances" not occurred." .
In our view there was no substantial miscarriage of justice suffered by the Owners. The Tribunal decision was in our view fair and equitable. It was not against the weight of evidence. The Builders had accepted rectification obligations before the litigation commenced. Although the Owners had 'success' in the litigation in that major defects were identified and ordered to be rectified, most of their claims were rejected as statute barred and the Builders had offered to rectify a number of the major defects. They were awarded their costs up to the date of the Calderbank letter. We do not consider that there was a significant possibility or even a fair chance that the Owners could have had a better outcome as the classification of the defects into major and non-major was fairly obvious, as was the operation of the statute bar. The Builders had indicated a willingness to consent to a Work Order. What was necessary was to sit down together and negotiate the fine details.
Leave to appeal is refused.

Orders

The orders of the Appeal Panel are:
Leave to appeal is refused.
The appeal is dismissed.
If a party seeks an order for costs of the appeal, that party may file written submissions within 14 days of publication of these reasons seeking an order in relation to the costs of the appeal.
If a party files submissions in accordance with order 3, any other party may file submissions in response within a further 14 days.
Any submissions filed in accordance with orders 3 and 4 should address whether the question of costs may be determined on the papers and without a hearing pursuant to s50(2) of the Civil and Administrative Tribunal Act 2013.

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: 11 July 2019

The Owners - Strata Plan 89023 v AT Building Pty Ltd

At a glance

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Decision date

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Judgment (11 paragraphs)

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Legislation Cited (1)

Cases Cited (10)