The Owners - Strata Plan No 89044 v Dreizi Constructions Pty Ltd

Relevant legislation and principles

1. Under s 60(1) of the Civil and Administrative Tribunal Act 2013 (the NCAT Act) each party to proceedings in the Tribunal is to pay the party's own costs.
2. Under s 60(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. In determining whether there are special circumstances warranting an award of costs the Tribunal may have regard to the factors set out in s 60(3).
3. An exception to s 60(2) appears in cl 38 of the Civil and Administrative Tribunal Rules 2014 (the NCAT Rules), where the Tribunal may award costs in proceedings in the Consumer and Commercial Division of the Tribunal even in the absence of special circumstances warranting such an award if the amount claimed or in dispute is more than $30,000.
4. In those circumstances, the general starting point is that the successful party is entitled to a cost order; that is, that costs should follow the event. This principle is subject to exceptions generally involving misconduct on the part of that party.
5. 10 However in circumstances where the matter is not heard on the merits and the parties settle, where it appears that 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; in Re Minister for Immigration & Ethnic Affairs (Cth); Ex Parte Lai Qin (1997) 186 CLR 622 at 624 - 625 (Lai Qin).

Homeowner's submissions

1. The Homeowner submitted that the Homeowner had attempted to lodge a complaint with NSW Fair Trading prior to the commencement of NCAT proceedings but the complaint was refused on the basis that the limitation period was due to expire within three months of the date of the complaint.
2. The Builder had denied the existence of defects until the receipt of the Builder's expert report.
3. Seeking costs on an ordinary basis, the Homeowner submitted: 1. The NCAT application initially sought an order for the Builder to do works valued at $40,446.62. The Homeowner filed an additional expert report which identified additional defects at the property valued at $225,616.77. Both claims exceeded $30,000 and rule 38 should apply; 2. There were no factors that would warrant a departure from the usual principle that costs should follow the event. The Homeowner was largely successful in its claim and it should not be denied costs on the basis that the proceedings were not determined on their merits; 3. A costs order may be justified where proceedings are solved by consent in circumstances where a party was forced to pursue proceedings to obtain relief which was ultimately obtained by compromise; 4. Although not all items were included in the Work Order, most the defective items were accepted and the Builder had capitulated from its original position that the works were not defective. The Homeowner submitted that it was therefore substantially successful in its claim. 5. A costs order against the Builder was warranted because: 1. the Homeowner's evidence was so strong that the Builder effectively surrendered its defence by entering in the Work Order; 2. the Homeowner would have been largely successful in its claim if the Tribunal had determined the proceedings; 3. the Builder had denied the existence of the defects throughout most of the proceedings. The parties had agreed to engage an independent building consultant to inspect the building and recommend rectification works but the Builder withdrew its consent to that process in March 2021. The Homeowner again offered a similar pathway on 7 April 2021 which was rejected. As a result, the Homeowner proceeded with the litigation; 4. The Builder filed an expert report dated October 2021 which confirmed that items 1, 2, 5, 6, 7, 10, 12 and 13 were major defects. According to the Joint Experts Report, the experts agreed that items 1, 4, 5, 6, 7, 10, 11, 12 and 13 were major defects but could not agree on a scope of works. The experts also agreed that items 2 and 4 were major defects on which a scope of work could be agreed. The only defects that the Builder's expert maintained were not major defects were items 3, 8. 9 and 14. 1. Calderbank offers had been made on 7 April 2021, 25 May 2022 and 8 June 2021 (the last of which was accepted by the Builder on 9 June 2021). The Homeowner sought costs on an ordinary basis as agreed or assessed and did not seek to rely on the Calderbank offers for an indemnity costs order.

Builder's submissions

1. The Builder submitted that each party should bear its own costs. The Builder acknowledged that Rule 38 of the Rules should apply but noted that the Tribunal had a discretion whether to award costs and submitted that there was no absolute rule that a party who obtained orders from the Tribunal such as a Work Order, must receive an order for costs.
2. As reasons for costs not to be awarded, the Builder submitted: 1. The Homeowner commenced the proceedings on the last possible day (on 14 January 2021 after the final occupation certificate was issued on 14 January 2015); 2. As a result, the Builder had been deprived of notice of the defective work, opportunity to rectify the defective work, the benefit of the Office of Fair Trading process and any opportunity to obtain advice from an expert building consultant prior to the commencement of proceedings; 3. The Builder had attended the property for the purposes of carrying out some rectification work during the proceedings and had not denied the existence of defects as claimed by the Homeowner; 4. The Builder was in any event entitled to obtain expert advice prior to attempting to resolve the dispute; 5. The result encapsulated in the Work Order broadly accorded with offers made on the Builder's behalf during the proceedings. The Builder's solicitor made an offer on 29 April 2022 which reflected the terms of the Work Order save for items 4 and 11. On 6 June 2022, the Builder's solicitor put forward another offer, which broadly reflected the terms of the Work Order; 6. There was no hearing on the merits and, in accordance with Lai Qin, this should inform the exercise of the discretion on costs; 7. When the Work Order was compared with the Builder's position as recorded in the Joint Expert Report dated 9 March 2022, it reflected the position of the Builder in that report and did not reflect the Homeowner's position in relation to any of the items claimed. The Builder contended that this represented a capitulation by the Homeowner; 8. the Homeowner was not entitled to costs in circumstances where it prosecuted purported defective items, but resiled from those claims shortly before the hearing; 9. On the costings provided by the Builder's expert, the total sum of rectification work reflected in the Work Order was $29,619.48. The costings prepared by the Homeowner's expert was not comparable to the scope of rectification work contained in the work order; and 10. The conduct of the Homeowner had unreasonably added to the costs and time spent on the litigation.

ISSUES

1. The issues to be determined are: 1. Should a hearing on costs be dispensed with in accordance with s 50(2) of the Civil and Administrative Tribunal Act 2013 (the NCAT Act)? 2. Who is the "successful party"? 3. Should costs be awarded in circumstances where consent orders were entered and there was no hearing on the merits?

Should a hearing on costs be dispensed with in accordance with s 50(2) of the NCAT Act?

1. Under s50(3) of the NCAT Act, the Tribunal may not make an order dispensing with a hearing unless the Tribunal has first afforded the parties an opportunity to make submissions about the proposed order and taken the submissions into account.
2. In the consent orders, each of the parties was required to include in their written submissions reference to whether they consented to the costs issue being determined on the papers and without further oral hearing. Neither party did so.
3. I am satisfied that the parties have been afforded an opportunity to make submissions and none have been made.
4. The costs issues have been thoroughly addressed in the parties' written submissions and can be adequately determined in the absence of the parties by considering those written submissions. Accordingly, I am satisfied that it is consistent with the Tribunal's guiding principle under s36 of the NCAT Act to facilitate the just, quick and cheap resolution of the real issues in the proceedings to dispense with a hearing in relation to costs.

Who is the "successful party"?

1. The Homeowner claimed to be successful because most of the items from the Joint Expert Report were accepted in the Work Order.
2. The Builder claimed that the Homeowner had capitulated because the result encapsulated in the Work Order broadly accorded with offers made on the Builder's behalf during proceedings.
3. In Salakis v Silvabuilt Pty Ltd; Silvabuilt Pty Ltd v Salakis (No 2) [2022] NSWCATAP 95 (Salakis) the Appeal Panel considered a similar question as to whether a homeowner or a builder was the successful party in circumstances where proceedings had resulted in a work order.
4. The builder in Salakis had relied upon a passage from the decision of Ward J in Quest Rosehill Pty Ltd v White [2020] NSWSC 1190 at [67]: 67 I have previously had occasion to refer to what was said in the English Court of Appeal in Roache v News Group Newspapers [1992] TLR 551 (as cited by the Queensland Court of Appeal in Timms v Clift [1998] 2 Qd R 100) where the question as to who was to be seen as the successful party "in the event" was posed as being a question as to "[w]ho, as a matter of substance and reality, had won? Had the plaintiff won anything of value or anything he could not have won without fighting the action through to a finish? Had the defendant substantially denied the plaintiff the prize which the plaintiff fought the action to win?"
5. However, the Appeal Panel found (at [35]): We do not consider that the decisions in Quest Rosehill Pty Ltd v White and Hawkesbury District Health Service Ltd v Chaker (No 2) lay down any rule in the terms posited by the builder. The question is not whether the homeowners had been "substantially denied" what they had sought, but rather whether, "as a matter of substance and reality", they had "won anything of value or anything [they] could not have won without fighting the action through to the finish". The judgment in the homeowners' favour of an amount in excess of $25,000 was clearly something of value, and there is no suggestion from the builder that the homeowners were not compelled to bring proceedings to recover that amount in respect of the defects in the work carried out by the builder.
6. In the present case, the Homeowner's proceedings sought rectification of identified defects by the Builder. The Homeowner was successful in that endeavour. Although some defects were intentionally omitted from the Work Order, there was a sufficient proportion of identified defects from the Joint Expert Report in the Work Order to find that the Homeowner, with some compromises, was successful overall.
7. The Builder claimed that the Homeowner had capitulated because the Work Order reflected the offer of settlement that the Builder had made. Even if that was the case, the Builder's original position in the Points of Defence was that the Tribunal did not have jurisdiction because the application was lodged out of time. The Builder may have gleaned some concessions along the way but the outcome in the Work Order represented considerable movement from the Builder's initial stance and the Builder was not the successful party in the end.
8. Accordingly, if costs are to follow the event, any costs order would be in favour of the Homeowner.

Should costs be awarded in circumstances where consent orders were entered and there was no hearing on the merits?

1. The facts in this matter resemble those in the Appeal Panel matter in Knox v Bollen; Bollen v Knox [2018] NSWCATAP 106 (Knox). Both matters consider the outcome of a conclave report and both matters were settled on the day of the hearing, before they were heard on the merits.
2. In Knox (at [45] to [50]) the Appeal Panel considered the relevant authorities and confirmed that the discretion to make a costs order may be exercised in the absence of a hearing on the merits in certain circumstances. The Appeal Panel cited Lai Qin and the authorities referenced in that judgment where such circumstances were found to include: 1. where one of the parties has acted so unreasonably that the other party should obtain the costs of the action; 2. where the plaintiff had no reasonable alternative but to commence litigation; and 3. where, although both parties had acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried.
3. In Knox, the Appeal Panel referred to Australian Securities Commission v Aust- Home Investments Ltd (1993) 44 FCR 194 where Hill J examined several authorities (at [31]) and concluded that they supported the following (relevant) propositions (citations omitted): 1. Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a cost order; 2. It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial; 3. In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them; 4. In a particular case it might be appropriate for the Court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation.
4. The Appeal Panel also considered the decision in ONE.TEL Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548, (ONE.TEL Ltd) where Burchett J considered the question of awarding costs in cases where the substantive issue in dispute has been resolved without a hearing on the merits and held, at 553 [6]: …[I]t is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs….
5. In considering the exercise of the discretion to award costs, I have taken into account the circumstances in which these proceedings were conducted. The Homeowner did commence proceedings on the last day of the statutory time limit set out in s 18E(1)(b) of the HB Act. Where the time limit was about to expire and the alleged defects had not been rectified, the Homeowner acted reasonably in commencing litigation to preserve its statutory warranty.
6. It was also reasonable for the Builder to continue proceedings until the Builder's expert had inspected the premises. This occurred in October 2021.
7. The Homeowner submitted that, on the strength of its evidence, the Homeowner would have been largely successful in its claim had the Tribunal determined the proceedings.
8. As part of the Builder's defence, the Builder had contended that the Tribunal did not have jurisdiction to determine the Homeowner's application because proceedings were not commenced before the end of the warranty period because an interim occupation certificate had been issued on 3 December 2014. Ultimately this issue was not determined because, on the day of the hearing, for the purposes of entering the consent orders the parties agreed on the jurisdictional fact that the date of completion was the date of issue of the final occupation certificate, being 14 January 2015.
9. Had the matter proceeded, it would likely have been necessary for the Homeowner to establish that the Tribunal had jurisdiction to hear and determine the claim (Vella v Mir [2019] NSWCATAP 28 at [47] - [48]). Without "try[ing] a hypothetical action between the parties", it is difficult to determine which party would have prevailed on this point, before moving to the issue of any work order. Accordingly, even though the consent orders resulted in the Homeowner's success, I am not satisfied that the Homeowner was "almost certain to have succeeded" if the matter had been fully tried.
10. Both parties claimed that the other had capitulated.
11. The Builder submitted that the Work Order reflected a capitulation by the Homeowner. This was because a comparison of the Work Order with the Builder's position recorded in the Joint Expert Report revealed that the Work Order reflects the position of the Builder as recorded in the Joint Expert Report dated 9 March 2022 and that the Work Order did not reflect the Owner's position in relation to any of the items claimed. However even on the basis of the comparison chart which was included with the Builder's submissions, it is evident that the items in the Work Order were based on items which were agreed between the parties and so the Work Order did reflect the Owner's position, even if compromises on the scope of work required for some items were reached. I am satisfied that the Work Order reflects compromise, not capitulation by the Homeowner.
12. The Homeowner submitted that the Builder had capitulated because even though not all items were included in the Work Order, most of the items were accepted and the Builder had capitulated from its original position that the works were not defective. However, in the points of defence, the Builder's original position was that the application was out of time, not that the works were not defective. The parties then sought evidence regarding the defects and worked towards a compromise, which was only reached immediately before the hearing. I am also not satisfied that the Builder capitulated as opposed to having compromised.
13. The Work Order does not represent a capitulation by either party.
14. In a recent decision of the Appeal Panel in Graham v Caravans & Motorhomes Pty Ltd t/as Jayco Newcastle [2022] NSWCATAP 209 (28 June 2022) costs were awarded partly on the basis that one of the defendants had capitulated. Those were not the circumstances here and I am satisfied that in this case, 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. In accordance with McHugh J's decision in Lai Qin, the discretion to award costs should not be exercised in this case.

Orders

1. The issue of costs is determined without an oral hearing in accordance with s 50 (2) of the Civil and Administrative Tribunal Act 2013 (NSW).
2. Each party is to bear 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

Amendments 25 September 2023 - Formatting amendments. 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: 25 September 2023