The Owners - Strata Plan No. 64807 v Sunaust Properties Pty Ltd - [2022] NSWCATCD 40 - NSWCATCD 2022 case summary

NCAT Consumer and Commercial|2022-03-28

Outline

The successful applicant sought (1) an order for costs, based on s 60 of the Civil and Administrative Tribunal Act 2013 (the CATA), and (2) for those costs to be made payable on an indemnity basis from 5 November 2021, based on a Calderbank letter. The respondent opposed both those requests.
Having considered the submissions of the applicant (MFI A), respondent (MFI B), and applicant in reply (MFI C), the Tribunal determined there were special circumstances which warranted an order for costs. The Tribunal would have awarded indemnity costs but for the fact that there was no reference to indemnity costs in the Calderbank letter.

Background

Termination of a caretaker agreement was sought by the applicant and was opposed by the respondent. The proceedings were listed for three days, during which more than 5,000 pages of documents were tendered. There were 20 affidavits from 15 witnesses and nine of those witnesses were cross-examined. A fourth day was required for oral closing submissions which supplemented more than 60 pages of what were said to be Outline Submissions.
Reasons which were 86 pages in length set out why the Tribunal decided that the caretaker agreement should be terminated and that two lots, described as caretaker lots, should be sold. Orders were also made for the provision of the password for a digital video recording system and for submissions to be lodged in relation to any application for costs.

Relevant law

The effect of s 60 of the Act is that s 60(1) provides that "Each party to proceedings in the Tribunal is to pay the party's own costs" but s 60(2) relaxes that default position by providing that "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". The following non-exhaustive list of considerations is set out in s 60(3): (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 the Tribunal considers relevant.
Although it common for parties to focus upon whether any of those individual considerations apply, the Tribunal is required to make a global assessment of whether there are special circumstances, having regard to the matters set out in subsection 60(3).
It is well-established that the adjective "special" requires circumstances that are out of the ordinary but do not need to be extraordinary or exceptional: Megerditchian v Kumond Homes Pty Ltd [2014] NSWCATAP 120, adopting what was said in Cripps v G & M Mawson [2006] NSWCA 84 at [60].
Since s 60(2) commences with the words "The Tribunal may award costs …", it is clear the Tribunal has a discretion which must be exercised. It is necessary to consider not only whether there are special circumstances but also whether those circumstances warrant an award of costs: BPU v New South Wales Trustee and Guardian (Costs) [2016] NSWCATAP 87 at [9].
It is also clear that the direction to award costs must be exercised judicially (Brunsprop Pty Ltd v Joanne Hay & Wes Davies [2015] NSWCATAP 152 at [27]), that each case will depend on its own circumstances (eMove Pty Ltd v Naomi Dickinson [2015] NSWCATAP 94 at [48]), and that, when special circumstances are found to exist, that the normal principles applicable to awarding costs must be considered (Brodyn Pty Ltd v Owners Corporation Strata Plan 73019 (No 2) [2016] NSWCATAP 224 at [24]).
In Mendonca v Tonna [2017] NSWCATAP 176, the Appeal Panel, prior to noting (at [60]) that unreasonable refusal of a genuine offer of settlement was one circumstance in which indemnity costs may be awarded, said (at [59], omitting case citations): Indemnity costs are only awarded 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.
In these proceedings, a claim for costs on an indemnity basis was made, based on what are commonly called a Calderbank letter, being a letter that follows the practice established in the UK by the decision in Calderbank v Calderbank [1975] 3 All ER 333.
That decision revealed a strategy employed in Family Court proceedings, as an alternative to paying money into court, of conveying an offer of settlement in writing to the other party, indicating an intention to rely on that letter to seek an order for costs if a better outcome was not later obtained at the hearing.
However, it is important to note that rejection of an offer contained in a Calderbank letter does not automatically result in an indemnity costs order: Jones v Bradley (No 2) [2003] NSWCA 258, Old v McInnes and Hogkinson [2011] NSWCA 410.
The principles that need to be considered, as established by cases such as SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323, Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 and Nu Line Construction Group Pty Ltd v Fowler [2012] NSWSC 816, are: 1. There must have been a real and genuine element of compromise. 2. The refusal must have been unreasonable. 3. The reasonableness in rejecting an offer must be considered at the time the offer is made and not with the benefit of hindsight.
Matters relevant to whether rejection of the offer was reasonable include: 1. the stage of the proceedings when the offer was made, 2. the time that was allowed for the offer to be considered, 3. the extent of the compromise offered, 4. the recipient's prospects of success at that time, 5. the clarity of expression of the offer, and 6. whether the offer foreshadowed a request for indemnity costs.
On the question of whether to consider costs by reference to the issues rather than just the outcome, the Tribunal notes the oft-cited statement of the relevant principles in Bostik Australia v Liddiard (No 2) [2009] NSWCA 304 at [38]. In Smith v Giro Construction Pty Ltd [2015] NSWCATAP 214 at [27-28] the Appeal Panel, after referring to that decision, distilled those principles to two propositions: first, that where there are multiple issues there is generally no attempt to differentiate between those on which a party succeeded and those on which it failed; secondly, that a successful party should only be deprived of a costs order where the unsuccessful issues were dominant or severable, having regard to the significance of those unsuccessful issues to the outcome, the time they occupied at the hearing and (to the extent it can be determined) in preparation for that hearing.

Applicant's submissions

The applicant submitted that a consideration of the matters set out in paragraphs (b), (d), (f) and (g) of s 60(3) warranted a finding there were special circumstances in this instance.
As to paragraph (d), reference was made to (1) the absence of any prior reported decision on s 72 of the Strata Schemes Management Act 2015 (the SSMA), (2) the prior grant of leave for legal representation, (3) the amount of documentary evidence, and (4) the respondent having made a third attempt to argue the Tribunal lacked jurisdiction by reason of pre-existing Supreme Court proceedings.
In relation to paragraphs (b) and (f), it was submitted that there was (1) time spent proving matters which should have been conceded, (2) excessive time taken in cross-examination of the applicant's witnesses, (3) no response to a notice to admit facts dated 19 October 2021 and a notice disputing facts sent on 1 November 2021 in response to a similar notice served on 18 October 2021 in the Supreme Court proceedings, (4) no response to a follow-up letter dated 2 November 2021, and (5) a failure to respond to a proposed statement of agreed facts, agreed chronology, and statement of issues that was served in compliance with directions made on 29 October 2021.
Matters said to be relevant to paragraph (g) were (1) the 4 November 2021 Calderbank letter, (2) the prior costs order made in favour of the respondent against the applicant when the related interim application was finalised, (3) the claim by the respondent for $105,521.62 for such costs and the fact that $68,233.54 was awarded when those costs were assessed, and (4) that some of the work covered by that costs order related to work that was used in the respondent's conduct of the substantive application.
In relation to the Calderbank letter, it was submitted that (1) the respondent did not achieve a better outcome by proceeding with the hearing, (2) that letter contained a genuine element of compromise, (3) at the time the letter was sent the respondent was aware of the issues, (4) sufficient time was allowed for its acceptance, and (5) the respondent's lawyers were put on notice that indemnity costs would be sought by reason of the sentence which read: "This offer is made in accordance with the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333".

Respondent's submissions

After referring to the applicable principles by reference to the case law, the respondent dealt with the applicant's contentions under three headings.
As to the nature and complexity of the proceedings (ie paragraph (d)), it was contended that (1) the respondent's defence of the application did not amount to a special circumstance, (2) nor did the grant of leave for legal representation, (3) the challenge to jurisdiction only occupied eight paragraphs in the reasons, (4) the documents were not complex are were of a kind with which the Tribunal routinely deals, (5) nor was there complexity in the affidavits. In short, it was contended that there was "nothing unusually complex or untoward about the case".
Submissions were made under the heading of s 36, which went to paragraph (f). In response to the reference to the cross-examination of the applicant's witnesses, reference was made to the cross-examination of the respondent's witnesses. It was also suggested there were allegations made by the applicant that were irrelevant to the issues in the proceedings, that cross-examination was necessary to prevent a Browne v Dunn submission, that a reason for the length of cross-examination was a joint statement signed by four witnesses, and that a response to the notice to admit facts was made in the Supreme Court proceedings. Disagreement with the applicant's proposed statement of agreed facts, chronology, and statement of issues was said to not involve a contravention of s 36. Further, it was contended that the outcome of a contested question of fact does not amount to a special circumstance.
As to the Calderbank letter, it was said that it was sent at 3.33pm on Thursday 4 November 2021 and made an offer which expired at 5pm on Monday 8 November 2021. The reasons advanced against that letter constituting a special circumstance were said to be (1) it only provided two business days for acceptance which was unreasonably short when the hearing was set to commence on 15 November 2021, (2) there was no genuine element of compromise, (3) it was not unreasonable for the respondent to have not accepted the offer made in that letter, (4) the applicant's prospects of success at that time were "far from clear", and (5) the order sought had never been previously made.
It was also suggested that (1) the applicant's witnesses had colluded, (2) the respondent had evidence it had done a good job as caretaker, (3) the contested evidentiary aspects "could have gone either way", (4) the outcome cannot be used retrospectively to consider the terms of the offer made in a letter dated 4 November 2021, (5) there was no indication in the letter that indemnity costs would be sought in the event that the offer was not accepted, and (6) that the costs order made in the interim proceedings should not be considered relevant to the question of costs in these proceedings.
Under the heading "Additional considerations", it was contended that a particular finding under s 60(3) should not be used as a basis for a costs order which encompasses the entire hearing as the "vast majority of matters that took any substantial hearing time … were of an ordinary nature". Further, that matters which weigh against the applicant should also be considered,

Submissions in reply

The points made in the applicant's submissions in reply may be summarised as: (1) paragraph (d) refers to the complexity of the proceedings, (2) time was necessarily taken in cross-examining Ms Sun and her son, Mr Xue, because they unreasonably refused to admit matters and denied what was recorded in documents, (3) the statement co-signed by four people was not served by the applicant but was raised and pursued by the respondent, (4) the Calderbank letter contained an explanation for the time provided for acceptance, (5) while that letter did not refer to indemnity costs, it referred to "the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333", (6) the Tribunal should not seek to tally wins and losses without good reason, rely on what was said in Cretazzo v Lombardi (1975) 13 SASR 4 at 16 and Sanders v Snell (No 2) (2000) 174 ALR 53 at 57 per Kirby J.

Consideration

The Tribunal is satisfied that the nature and complexity of the proceedings was such as to warrant a finding that there were special circumstances in this case. That finding is based on the volume of documents, the number of witnesses, the number of factual aspects requiring consideration, the extent of the written and oral submissions, and the legal issues raised, notably the question raised by the respondent as to whether s 72 of the SSMA applied.
The respondent's contention the documents were of a kind with which the Tribunal routinely deals is rejected: there were more than 5,000 pages which ranged over multiple issues and neither those documents nor the proceedings, considered as a whole, can properly be regarded as routine.
An additional consideration which provides support for the conclusion are the absence of any indication of a response to document sent by the applicant to the respondent in compliance with directions made on 29 October 2021.
Further, while the interim proceedings were a separate application, it would be a curious outcome for a interim application to involve special circumstances but not the related substantive application. What makes that aspect stronger for the applicant in this instance is that the documents submitted by the applicants reveal that part of the work product of the interim proceedings was used in the substantive proceedings with the result that the successful applicant has, by paying the costs order made against it in respect of the interim application, paid part of the costs of the unsuccessful respondent relevant to the substantive application.
Having decided that there are special circumstances, it is necessary to consider whether such circumstances warrant an order for costs, bearing in mind the usual principles relating to orders for costs. There is nothing which would justify a finding there has been disentitling conduct on the part of the respondent and no reason why costs should not follow the event. There is no dominant or severable issue on which the respondent was successful that would provide a basis for a consideration of costs by reference to issues rather than outcome.
Moreover, the Tribunal is satisfied that the duration of the hearing, and thus the costs, was increased by the unreasonable failure to concede matters such as Ms Sun and Mr Xue's membership of the strata committee.
The reference to the statement signed by four witnesses for the applicant does not tell against the applicant as it did not seek to rely on that document which the respondent chose to raise in cross-examination.
Accordingly, the applicant is considered entitled to an order for costs on the ordinary basis. It remains to assess whether that order should be made on an indemnity basis from 5 November 2021.
By reason of its significance to the question of costs, the content of the Calderbank letter upon which the applicant relies is, for convenience, reproduced as Appendix 1 to these reasons.
While it is correct to state that the outcome is not relevant to whether the refusal to accept the offer contained in the Calderbank letter was unreasonable, it is necessary to first compare the outcome with that offer since it is only necessary to consider the Calderbank letter if it contained an offer that would, if accepted, have provided a better outcome for the respondent. That is clearly so in this case since acceptance of the offer would have (1) permitted the respondent to retain ownership of one of the two caretaker lots, being the lot from which a real estate agency is conducted, and (2) rendered the respondent immune from any application for it to pay the costs of the applicant.
Based on those two matters, the Tribunal has no doubt that the offer contained a real and genuine element of compromise. It is therefore necessary to consider whether the offer was unreasonably refused, by reference to the circumstances at the time when the offer was made. The matters relevant to whether that rejection was reasonable are set out below.
The offer was made on 4 November 2021, just under two weeks prior to the hearing. While the time allowed for the offer to be considered was not lengthy, it was made at a time when the applicant's evidence had been filed and served on the respondent and its preparation for the hearing either had commenced or was about to commence.
It is clear the extent of the compromise offered was significant, being the two matters referred to above. as to the respondent's prospect of success at the time the offer was made, in this case the allegations made by the applicant related to the conduct of Ms Sun and her son, being matters that were with her knowledge, including but not limited to (1) charging a 5% annual increase instead of a CPI increase, (2) membership of the strata committee, and (3) conduct relating to the 8 August 2020 annual general meeting.
As the respondent's principal, Ms Sun should have had a realistic view of the respondent's prospects of success at that time, especially when she had the benefit of legal advice which appears to have, at that time, involved not only a solicitor but also a barrister. The suggestion that no order for termination of a caretaker agreement had been previously made is not considered a satisfactory response. That is no defence because the question is not whether an order has been made in previous proceedings but whether an order should be made in these proceedings.
There is no lack of clarity of expression in the offer. However, the offer did not expressly foreshadow a request for indemnity costs: only impliedly by reference to "the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333".
It is noted that a letter which suggests it will be relied on but does not mention indemnity costs could be taken to mean that an order for costs on the ordinary basis will be sought, since the position in the Tribunal is that each party is to pay their own costs unless either there are special circumstances warranting an order for costs or the amount claimed or in dispute exceeds $30,000.
Given that it has been established at appellate level that it is relevant to consider whether a Calderbank letter foreshadowed an application for indemnity costs if the offer was not accepted and an outcome no better is obtained at the hearing, the Tribunal takes the view that it is not for a Tribunal at first instance to 'water down' that aspect.
The Tribunal is satisfied this would have been a case which warranted an order for indemnity costs to be awarded on and after 5 November 2021 but for the failure of the Calderbank letter to foreshadow an application for the payment of subsequently incurred costs on an indemnity basis.

Orders

The applicant, in its submissions, accepted that costs should be determined on the papers. While the respondent did not provide any indication despite the Tribunal's indication that it should do so, it did not make any submission to the contrary. The Tribunal is satisfied there is no utility in conducting a further hearing on the question of costs. Accordingly, for the reasons set out above, the Tribunal makes the following orders: 1. The Tribunal dispenses with a hearing on the question of costs, pursuant to s 50(2) of the Civil and Administrative Tribunal Act 2013. 2. The respondent is to pay the costs of the applicant, on the ordinary basis, as agreed or assessed.

Appendix 1 Letter, on letterhead of applicant's solicitors, sent by email to respondent's solicitors 4 November 2021 "Without prejudice save as to costs" Dear Colleagues THE OWNERS - STRATA PLAN NO. 64807 v SUNAUST PROPERTIES PTY LTD NCAT FILE NO. SC 21/02639

We note that the final hearing of these proceedings is to be held in the Tribunal over the course of three days on 15, 16 and 17 November 2021. The preparation and conduct of that hearing will involve the incurring of significant further costs for both parties.
In the circumstances, on a pragmatic commercial basis, in order to resolve the proceedings without the need to incur those further significant costs, we are instructed that the owners corporation is prepared to resolve the proceedings on the following basis: The Tribunal makes the following orders by consent: The Caretaker Agreement between The Owners - Strata Plan No. 64807 and Sunaust Properties Pty Limited dated 16 March 2001 is terminated with effect from 8 November 2021; No order as to costs with the intention that each party pay its own costs of the proceedings (note: not including the costs of the interim application which have already been paid to Sunaust, which Sunaust is entitled to keep). Sunsaust agrees to sell lot 109 (caretaker's office area in the Stage 1 foyer) in Strata Plan 64807 to the owners corporation at an agreed value, of failing agreement within 14 days, at a sum that is the average of three independent valuations by suitably qualified valuers ('suitably qualified' within the definition in NSW Revenue ruling DUT 044), with the parties to each nominate a valuer to undertake a valuation, and the third valuer to be appointed by the President of the Law Society of NSW.
The owners corporation considers that it has good prospects of obtaining an order for the Caretaker Agreement to be terminated and, in such case, that Sunaust be order to pay its costs of an incidental to the proceedings. Further, in its application the owners corporation has sought a termination order with effect [from] the earlier dated of 15 March 2021. This offer is … therefore a significant and genuine compromise given that the owners corporation has already incurred significant legal costs to date.
This offer is made in accordance with the principles enunciated in Calderbank v Calderbank [1975] 3 All ER 333 and is open for acceptance in writing until 5pm on Monday, 8 November 2021. That deadline has been nominated by the owners corporation because the parties will obviously need to continue with their preparation for the hearing if the offer is not accepted and the hearing is to proceed. If the offer is not accepted by that time, it automatically lapses ad is no longer available for acceptance. Yours … 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: 02 May 2022

The Owners - Strata Plan No. 64807 v Sunaust Properties Pty Ltd

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