The Owners - Strata Plan No 30361 v Morgan

NCAT Rules

1. Part 9 (cll 37-40) of the Civil and Administrative Tribunal Rules 2014 (NSW) (NCAT Rules) deals with the determination of proceedings. Rule 38 deals with costs in the Consumer and Commercial Division of the Tribunal, and relevantly provides: 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 - … (b) the amount claimed or in dispute in the proceedings is more than $30,000.
2. Rule 38A deals with costs in internal appeals, and provides: 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.
3. The parties consented to the issue of costs being determined on the papers and a hearing being dispensed with pursuant to s.50(1)(c) of the NCAT Act. We are satisfied that the issue for determination in relation to the costs of the appeal can be adequately determined in the absence of the parties at a hearing by considering their written submissions. Accordingly, we have decided to order that a hearing of the costs issue is to be dispensed with.
4. Further, the parties accepted that as the amount in dispute on appeal exceeds $30,000, being an appeal from proceedings in the Tribunal's Consumer and Commercial Division, the Tribunal may award costs in the absence of special circumstances: see r 38 of the NCAT Rules.

Submissions of the appellant

1. The appellant's submission was that each party should bear their own costs. The appellant pointed to the circumstances whereby the appellant has withdrawn its appeal which means the respondent ought to pay its own costs.
2. The appellant submitted it was justified in launching the appeal and arguably had little choice but to do so. It noted the following chronology of events: 1. on 12 December 2019, the Tribunal ordered in the proceedings below that the appellant pay damages to the respondent in the sum of $30,904.60; 2. on 12 December 2019, the Appeal Panel ordered a stay of the Tribunal's decision pending the determination of The Owners - Strata Plan No 74835 v Pullicin; The Owners - Strata Plan No 80413 v Vickery [2020] NSWCATAP 5 (Pullicin and Vickery), being proceedings in which the Appeal Panel considered the question of whether the Tribunal had jurisdiction to award damages. We note that the date provided by the appellant was incorrect - the stay order was made, by consent, on 16 January 2020; 3. on 24 December 2019, the appellant lodged its Notice of Appeal alleging the Tribunal fell into jurisdictional error as it had no jurisdiction to award damages; 4. on 15 January 2020, the Appeal Panel in Pullicin and Vickery held that the Tribunal did not have jurisdiction to award damages; 5. on 11 December 2020, the Court of Appeal held in Vickery that the Tribunal did have jurisdiction to award damages; and 6. on 18 January 2021, the appellant withdrew its appeal.
3. The appellant submitted that where the Tribunal had held in Pullicin and Vickery that the Tribunal did not have jurisdiction to award damages, the appellant had no choice but to lodge its appeal of the Tribunal's determination in these proceedings. Further, it withdrew its appeal at the earliest available occasion.
4. The appellant submitted that whilst the parties exchanged settlement offers, these should not be considered to be relevant because: 1. until the Court of Appeal's judgment in Vickery, neither party was in a position properly to assess the likely outcome of the proceedings, and therefore neither party was in a position unreasonably to refuse an offer; and 2. the respondent's offers requested the appellant to pay a fixed sum inclusive of interest and costs without any bill of costs, invoice or other supporting documentation evidencing the legal costs incurred in the proceedings.

Respondent's submissions

1. The respondent submitted that in the absence of special circumstances, the costs discretion should be exercised so that the successful party, the respondent, should be entitled to an order for costs in its favour. Where an appeal is discontinued, the respondent submitted that the generally accepted course was that, absent some compelling reason, the discontinuing party should pay the costs of the discontinued proceedings.
2. Whilst the respondent accepted there was no need to be satisfied that special circumstances exist to award costs, it submitted that there were special circumstances warranting an award of costs in its favour, including: 1. the relative strength of the claims made by each of the parties; and 2. the nature and complexity of the proceedings.
3. Lastly, the respondent pointed to its Calderbank offer of 31 January 2020 where it offered to accept $25,000 (with each party to bear its own costs). It submitted that it was a genuine offer of compromise and it was unreasonable for the appellant not to accept it. On the basis of this offer of settlement, the respondent sought orders that the appellant pay the respondent's costs of the appellate proceedings on an ordinary basis up until 31 January 2020 and on an indemnify basis thereafter.

Consideration

1. An award of costs against a party is not intended to be punitive, but compensatory in nature in recognition that the successful party has incurred avoidable expense in defending an unmeritorious claim: see Oshlack v Richmond River Council (1998) 193 CLR 72 at 97 when McHugh J (in dissent but with the tacit agreement on this issue with other members of the Court) said: "The primary purpose of an award of costs is to indemnify the successful party. If the litigation had not been brought, or defended, by the unsuccessful party the successful party would not have incurred the expenses which it did. As between the parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation."
2. For other authorities to the same effect, see: Latoudis v Casey (1990) 170 CLR 534 at 543, 562-563; Allplastics Engineering Pty Ltd v Dornoch Ltd [2006] NSWCA 33 at [34]; Thompson v Chapman [2016] NSWCATAP 6 at [69].
3. More recently, the Appeal Panel in Dimitropoulos v Capital Constructions Pty Ltd [2019] NSWCATAP 164 (Dimitropoulos) stated at [34]: "Where an order for costs may be made in the absence of special circumstances, the starting point in exercising the discretion is that the successful party should be entitled to an order for costs in their favour."
4. Further, where a plaintiff (or appellant) discontinues without the consent of the defendant or respondent, the latter is entitled to an order unless a court orders otherwise: Scope Data Systems Pty Ltd v Agostini Jarrett Pty Ltd [2007] NSWSC 971; Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365; Norris v Hamberger [2008] NSWSC 785; Foukkare v Angreb Pty Ltd [2006] NSWCA 335 at [68].
5. The New South Wales Court of Appeal has made it plain that where a plaintiff (or appellant) discontinues without the consent of the defendant or respondent there must be some sound positive ground or good reason to order otherwise and depart from the application of the usual rule that costs should follow the event: see Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [54] (Australiawide Airlines); also see Ralph Lauren 57 Pty Ltd v Byron Shire Council [2014] NSWCA 107 at [21]-[29]; Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [53]-[54] and [69]-[74] (Bitannia).
6. The discretion to depart from the general rule is usually not exercised where a claim is abandoned or surrendered: Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624; Cummins v Australian Jockey Club Ltd [2009] NSWSC 254 at [22].
7. Similarly, the Appeal Panel has previously accepted in the case of an appeal which has been discontinued that "in the ordinary course, absent some compelling reason, the discontinuing party should pay the costs of the discontinued proceedings": Arambewela v Castle Projects Pty Ltd [2018] NSWCATAP 14 at [19]. Basten JA in Bitannia at [78]-[80] set out some exceptions: 78 This approach is not entirely consistent with that outlined in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; 186 CLR 622 at 624-625, where McHugh J concluded that where "both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings". However, the rule pursuant to which the applicant sought costs in the High Court conferred an open discretion: see High Court Rules 1952 (Cth), O 71, r 39, set out at 623. Further, his Honour held that where there had been no hearing on the merits, "a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order": at 624. UCPR rr 42.1 and 42.19 indicate that a different approach may properly be taken by this Court in respect of both issues upon which his Honour relied: see also Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [64] (Australiawide Airlines). 79 In some circumstances it may be argued that a discontinuance does not involve a surrender or abandonment by the plaintiff, but recognition that "some supervening event" has militated against success, rendered the proceedings futile, or wholly removed the plaintiff's cause of action: see One.Tel Ltd v Commissioner of Taxation [2000] FCA 270; 101 FCR 548 at 553 (Burchett J); Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302 at [5] (Davies AJA, Mason P and Meagher JA agreeing); Australiawide Airlines at [50]-[52] (Bryson JA, McColl JA agreeing). 80 There may be cases in which the distinction sought to be drawn in One.Tel Ltd is of assistance: however, neither category can be precisely defined, nor is the boundary between them clear. For example, in Newcastle Wallsend Coal Co Pty Ltd v Industrial Relations Commission of NSW [2006] NSWCA 129; 153 IR 386 discontinuance could be explained by reference to a legislative amendment which removed the applicant's hopes of success. Amending legislation may readily be characterised as a supervening event, but in Newcastle Wallsend, a further question arose as to whether discontinuance in fact flowed from reliance upon the amending legislation, or from an earlier decision of the Court which indicated that the applicant would be unsuccessful if it pursued its claim.
8. The decision in Newcastle Wallsend Coal Co Pty Ltd v Industrial Relations Commission of NSW [2006] NSWCA 129 was explained by Bryson JA, with whom McColl JA agreed, in Australiawide Airlines as follows at [52]: 52 Newcastle Wallsend Coal Co. Pty Ltd v Industrial Relations Commission of New South Wales [2006] NSWCA 129 was not an appeal but a decision in exercise of the Court of Appeal's discretionary power as to costs where the claims in the proceedings were overtaken by the decision of the Court of Appeal in Powercoal Pty Ltd v Industrial Relations Commission of New South Wales (2005) 64 NSWLR 406 which established that a major aspect of the claimant's arguments in the Court of Appeal could not succeed. Powercoal was followed by amendments to s.179 of the Industrial Relations Act 1996 (NSW) which had the effect that the claimant's claim, which faced difficulties before, could clearly not be maintained and the claimant had no choice but to discontinue. The Court of Appeal considered the question of grant of leave to discontinue and costs together, without express reference to r.42.19. Justice Tobias (with whom Mason P and Basten JA agreed in this respect) reviewed case law relating to the discretionary powers to order costs including Lai Qin. In my understanding Tobias JA treated the legislation as a supervening event and was of the view that each party should bear its own costs; whereas the majority (Basten JA with whom Mason P agreed) were of the view that the claimant should be taken to have failed because of the adverse disposition in Powercoal of questions on which their claim depended. I respectfully say that I see the divergence in conclusions as an illustration that more than one discretionary decision was available.
9. The issue here is whether the recent New South Wales Court of Appeal authority can relevantly be characterised as a supervening event justifying departure from the general rule. In our view, this is an ordinary contingency of litigation. For example, if the respondent had succeeded in the New South Wales Court of Appeal in overturning a decision of the Tribunal, it generally would have been allowed costs, including the costs incurred before the Tribunal. The decision in Newcastle Wallsend Coal Co Pty Ltd supports this conclusion.
10. Whilst we accept that the appellant acted reasonably in launching its appeal and in subsequently discontinuing the appeal, this is not sufficient. We must bear in mind that the primary principle underlying the usual order that costs follow the event is that costs are compensatory, not punitive, in nature.
11. As Basten JA remarked in Australiawide Airlines at [64]-[65], the mere fact that the plaintiff was "justified" in commencing proceedings, or that the parties acted "reasonably in commencing and defending the proceedings" would not necessarily warrant interference with the usual rule. Some additional factor is needed, such as conduct of the defendant which led the plaintiff to the reasonable belief that litigation would be necessary.
12. We are not satisfied that the appellant in the circumstances before us has made out a case justifying us in departing from the usual rule. Accordingly, we are satisfied the respondent is entitled to an order for costs in its favour on the ordinary basis.
13. That then leaves the respondent's submission as to whether or not costs should be awarded on an indemnity basis arising out of its offer of settlement on 31 January 2020.
14. The Appeal Panel in Dimitropoulos stated at [50]: "In general terms, the successful party who makes a valid Calderbank offer can use the rejection of that offer as a basis to obtain costs on an indemnity basis."
15. Leading authority on whether an indemnity costs order should be made based on an offer of settlement is Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2001] NSWCA 344 per Basten JA. His Honour at [88] identified two questions relevant to whether costs should be awarded on an indemnity basis. They are whether: 1. there was a genuine offer of compromise; and 2. it was unreasonable for the offeree not to accept it.
16. We accept the first element has been satisfied and that there was a real and genuine compromise involved in the offer. We are not, however, satisfied that it was unreasonable for the appellant not to accept it. At the time of rejection of the offer, the Appeal Panel had essentially upheld the appellant's grounds of appeal based on jurisdictional error in the case of Pullicin and Vickery. Until the issue was clarified by the Court of Appeal, it was reasonable for the appellant not to accept it.
17. Accordingly, we have decided not to grant the respondent indemnity costs arising out of the offer of settlement of 31 January 2020.

ORDERS

1. The Appeal Panel makes the following orders: 1. Order that a hearing is dispensed with in relation to the costs of the appeal. 2. Order that the appellant is to pay the respondent's costs of the appeal as agreed or assessed on the ordinary basis.

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: 08 March 2021