The Owners - Strata Plan No. 94197 v Secretary of the Department of Customer Service

Date of orders: 18 March 2025

Decision date: 18 March 2025

Jurisdiction: Common Law

Before: Elkaim AJ

Decision: 1. The proceedings are dismissed.
2. Subject to Order 3, the first defendant is to pay the plaintiff’s costs of the proceedings.
3. The costs assessed under Order 2 above are not to include any costs claimed by the plaintiff in respect of the notice of motion filed on 19 February 2024 by the second defendant or in respect of the preparation of expert reports for these proceedings.
4. The second defendant is to pay its own costs of the proceedings.

Catchwords: COSTS — Where plaintiff wishes to discontinue proceedings — Where proceedings discontinued by Plaintiff following agreement — Whether agreement was a compromise or an effective surrender by the defendant — Whether parties acted reasonably — Whether plaintiff’s case was “almost certain to have succeeded”

Legislation Cited: Home Building Act 1989 (NSW), Pt 2C
Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW), ss 33, 34, 45, 46, 47
Uniform Civil Procedure Rules 2005 (NSW), r 31.19

Cases Cited: CMC (Australia) Pty Ltd v Jim Sarantinos [2013] NSWSC 873
Gray v Richards (No 2) (2014) 89 ALJR 113; [2014] HCA 47
Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6
Printers Pty Ltd v Hawk Media Group Pty Ltd t/as Hawk Print [2025] NSWSC 194

Category: Principal judgment

Parties: The Owners - Strata Plan No. 94197 (Plaintiff)
Secretary of the Department of Customer Service (First Defendant)
Robert Touma (Second Defendant)

Representation: Counsel:
Mr F Corsaro (Plaintiff)
Mr I Lacy (First Defendant)
Solicitors:
Chambers Russell Lawyers (Plaintiff)
Department of Customer Service NSW (First Defendant)
Lionheart Lawyers Pty Ltd (Second Defendant)

File Number(s): 2023/294736

Publication restriction: No

JUDGMENT

1. The dispute before me is about costs. The following is a short background to the relevant litigation.

2. The dispute arises from the construction by the second defendant of a residential complex (the complex) in the Sydney suburb of Strathfield South. There are 18 units in the complex which was completed in September 2016.

3. The plaintiff is the owners corporation which has responsibility for the maintenance of the common property in the complex. The developer was Lahood Projects Pty Ltd (Lahood) which is the predecessor in title to the plaintiff.

4. The second defendant is subject to the statutory warranties imposed by Pt 2C of the Home Building Act 1989 (NSW). The plaintiff has the benefit of these warranties.

5. In September 2022, the plaintiff started Supreme Court proceedings against the second defendant and Lahood seeking damages arising from defects in the building’s design and construction. These proceedings, which are different to the proceedings before me, remain on foot. A directions hearing is due to take place on 4 April 2025.

6. Under the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) (RAB Act), the first defendant, a department in the New South Wales government, has the power to investigate and make rectification orders in respect of buildings such as the subject complex.

7. If the first defendant has a reasonable belief that a building has a “serious defect” it may issue a Building Work Rectification Order (BWRO) to a developer or builder to carry out the rectification work. There is no issue that the complex had a serious defect.

8. By s 45 of the RAB Act, before issuing a BWRO, the first defendant must give notice of its intention to do so to the relevant owners corporation. This allows, pursuant to s 46, the owners corporation to make representations to the first defendant in respect of the contents of the BWRO. If representations are made, s 47 says the first defendant is bound to consider them.

9. Once a BWRO has been issued, the owners corporation cannot, without reasonable excuse, stand in the way of the rectification work being performed.

10. On 9 May 2023, the first defendant, through an authorised delegate, issued a Notice of Intention to Issue a Building Work Rectification Order. The notice, which was given, perhaps indirectly, to the plaintiff, included a draft BWRO. The proposed BWRO primarily concerned two defects in the external walls of the building.

11. On 30 May 2023, the plaintiff, through its solicitors, made written representations to the first defendant about the draft BWRO.

12. On 18 August 2023, the first defendant issued a BWRO to the second defendant pursuant to s 33 of the RAB Act. The second defendant then, on 28 August 2023, demanded access to the complex in order to carry out the works that had been directed by the BWRO.

13. Before the work could be performed, the first defendant, on 29 August 2023, issued a second BWRO. The first defendant had not given the plaintiff notice of its intention to issue the second BWRO.

14. The differences between the first and second BWROs can only be described as minor. For example, “hebel” in the first BWRO is replaced by “Hebel” in the second BWRO.

15. The work that was directed to be performed in the two BWROs fell within the ambit of the proceedings that had been commenced by the plaintiff in September 2022.

16. The current proceedings were commenced on 15 September 2023 with the intention of setting aside the above BWROs.

17. The amended summons, filed on 13 December 2023, outlines a case in the nature of a judicial review of the first defendant’s decision to issue both BWROs. It alleges that the first defendant has denied the plaintiff procedural fairness for a number of reasons, and also that the BWROs did not comply with ss 33 and 34 of the RAB Act. In addition, it is asserted that the BWROs should be quashed or set aside because they were unreasonable. In particular, they were unreasonable because:

18. the first defendant had not had proper regard to an expert report; the RHM Report;

19. the first defendant suffered from a misconception in believing that the works it had directed would cure the defects; and

20. a reasonable decision-maker would not have issued the BWROs if proper consideration had been given to the opposition to the first BWRO by the plaintiff and the failure to give notice of the second BWRO. Further a reasonable decision maker would not have made the BWROs if it had properly considered “the inconvenience and disruption to which the Plaintiff will be further subject if the proposed works were to proceed.”

21. Following the commencement of the judicial review proceedings (the current proceedings), the plaintiff and the first defendant had settlement discussions in late 2023, but the proceedings did not resolve. As a result, preparation, in respect of evidence and submissions, continued.

22. On 30 July 2024, the first defendant issued a Notice of Intention to Issue a further BWRO. Upon receipt of this notice, the plaintiff made written submissions concerning the content of the proposed third BWRO.

23. The third BWRO was issued on 26 September 2024.

24. The plaintiff is satisfied that the third BWRO overcomes the issues and complaints that it had with the first two BWROs. Accordingly, the judicial review proceedings have become otiose, so that the plaintiff wishes to discontinue the proceedings. The plaintiff thinks the discontinuance should be accompanied by an order that the first defendant pay the costs of the proceedings.

25. The first defendant has no difficulty with the proceedings being discontinued but submits that each party should pay its own costs.

26. This is the costs argument left to me to resolve.

27. I note here that the plaintiff and the first defendant agreed that there should be no order as to costs in respect of the second defendant.

28. It is trite that there is a wide discretion in the making of a costs order. The High Court has concisely stated in Gray v Richards (No 2) (2014) 89 ALJR 113; [2014] HCA 47 at [2]:

“The disposition of costs is within the general discretion of the Court. Ordinarily, that discretion will be exercised so that costs are awarded to the successful party, but other factors may have a significant claim on the discretion of the Court. The disposition which is ultimately to be made in any case where there are competing considerations will reflect a broad evaluative judgment of what justice requires.” (footnotes omitted)

26. More specifically, relevant to the proceedings being discontinued, the High Court (McHugh J) said in Re Minister for Immigration & Ethnic Affairs*;* Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 (“Lai Qin*”*) at [6]-[9]:

“6. In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.

7. In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd, the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans.

8. Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in The South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.

9. If 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. This approach has been adopted in a large number of cases.” (footnotes omitted)

27. For present purposes I take the following from Lai Qin:

28. I should not try the hypothetical case between the parties.

29. I can, however, take into account that one of the parties may have been “almost certain to have succeeded if the matter had been fully tried”. This consideration, however, will be “rare”.

30. I should examine whether the parties have acted reasonably. I think this question involves both the institution of the proceedings and their maintenance.

31. Despite the efforts of the plaintiff in submissions, I do not think it appropriate for me to conduct a merits hearing. However, there is a consideration which I think falls under the category of “almost certain to have succeeded if the matter had been fully tried”.

32. This consideration arises from the failure of the first defendant to issue to the plaintiff a notice, under s 45, of intention to issue the second BWRO. The advocate for the first defendant properly conceded that the second BWRO was a distinct and separate BWRO from the first BWRO and accordingly, s 45 was enlivened. He also conceded that no notice had been given to the plaintiff.

33. When I put to the first defendant that this failure could have ensured the success of the plaintiff’s proceedings, the response was that because the difference between the BWROs was so minor and the time between them so short, that the court hearing the judicial review application would probably have exercised a discretion to excuse the failure to give notice.

34. Initially, I considered the response to have merit. However, there are certain facts which impact upon this issue. When the plaintiff’s solicitors, prior to the first BWRO being issued, made representations to the Department they referred to an expert report which was being prepared but had not yet come into existence. The forthcoming report was anticipated to include a rebuttal of the report (the Zait Report) which had been relied upon and effectively adopted by the first defendant in the preparation of the first BWRO.

35. The plaintiff’s report (the RHM Report) was in fact issued on 18 August 2023, the same day as the first BWRO was made. Had notice of the second BWRO been given to the plaintiff it could have made representations based on the RHM report which the first defendant would have been obliged to consider.

36. The failure to give notice of the intention to issue the second BWRO, therefore, had a potentially significant effect on the contents of the second BWRO. There is nothing in the second BWRO that required it being issued promptly.

37. I am accordingly satisfied that the failure to issue the s 45 notice is a matter which is very likely to have influenced the outcome of the proceedings in favour of the plaintiff.

38. The next point to be considered concerns the pleadings. As I have outlined above, the amended summons asserts that the first defendant did not give the plaintiff procedural fairness (in a number of respects), and that the first defendant acted unreasonably, including to the extent that it proposed works that would not have remedied the defects in the complex.

39. The response by the first defendant to the amended summons, filed on 31 January 2024 states:

“1. The First Defendant takes an active role in respect of the orders sought in these proceedings, and the grounds on which it is sought, only to the extent necessary to make submissions going to the powers and procedures of the Secretary pursuant to Pt 5 of the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) (RAB Act) and to assist the Court in respect of the RAB Act, technical aspects of the impugned building works rectification orders, and the Court’s role on judicial review of such orders.

2. The First Defendant does not otherwise take a position in respect of the Plaintiff’s application for relief.”

37. I have quoted the whole of the response filed by the first defendant to indicate that no issue is raised in respect of the allegations of procedural unfairness or unreasonableness. The first defendant makes it clear that its only concern is to assist the court with the general workings of the RAB Act, the technical components of the BWROs and the manner in which the Court should conduct a judicial review of the BWROs.

38. The response filed by the second defendant, on 31 January 2024, is far closer to the rebuttal one might have expected from the first defendant. The second defendant, unlike his co-defendant, takes specific issue with the allegations of procedural unfairness and unreasonable conduct.

39. At first sight, the first defendant’s approach might be seen as a concession to the allegations of procedural unfairness and acting unreasonably, but not conceding that the specific rectification orders were susceptible to judicial review.

40. When I put this matter to the first defendant’s advocate, he said that the process adopted by the first defendant was consistent with the approach taken in the Land and Environment Court and he noted that the second defendant, through his response, had taken up and placed in issue the factual allegations made by the plaintiff.

41. Having regard to this explanation, I do not view the first defendant’s response as giving rise to any concession on the part of the first defendant. However, I do think there is some significance in the plaintiff’s observation that the first defendant could also have filed a submitting appearance, in particular if the procedural fairness and reasonableness allegations were being ‘run’ by the second defendant.

42. The first defendant put its primary case through these words of Brereton J in Printers Pty Ltd v Hawk Media Group Pty Ltd t/as Hawk Print [2025] NSWSC 194 at [13]:

“Capitulation does not occur simply because a compromise results in relief that is less than the entirety of the relief that was sought by the Plaintiff. Compromise is not capitulation.” (I have underlined the words specifically emphasised by the first defendant)

43. The first defendant submitted that it had not given up, rather it had appropriately reacted to the plaintiff’s case, as indicated by the filing of a response to the summons. Further, it could not be said that the first defendant, in making the third BWRO, had simply bowed to the wishes of the plaintiff. To this end, I was taken to some of the correspondence between the parties. For example:

44. On 21 December 2023, the plaintiff’s solicitor wrote to the first defendant asking if “the Department will be amenable to varying the order to facilitate Mr Touma undertaking the agreed scope”.

45. The Department responded on 25 January 2024, stating: “The Department’s position is that we would agree to consider any joint representations regarding scope, but could not guarantee that the Order would be varied exactly as suggested”.

46. On 29 April 2024, the Department stated “…please be advised that the first defendant will not simply issue any BWRO that the other two parties propose, or amend the BWRO, without being satisfied that such an order or amendment is warranted in accordance with the relevant Act”.

47. The point being made by the first defendant was that it would not simply give up on the first two BWROs, and that while it would consider the making of a third BWRO, that third BWRO would not be as dictated by the plaintiff (or the second defendant) but rather as decided upon by the first defendant in accordance with the RAB Act.

48. The first defendant says the third BWRO was part of the settlement of the proceedings, and only came about to bring the proceedings to a sensible and early resolution. There was no concession that the first two BWROs were in any way defective, and they may well have survived the attack on them. I was referred to CMC (Australia) Pty Ltd v Jim Sarantinos [2013] NSWSC 873 (“CMC”) where Brereton J said, at [34]:

“In my view, while the plaintiff obtained practical success as a result of instituting the proceedings, it did so not because the defendants capitulated to the inevitable, but because they made an early commercial decision to take steps to avoid further litigation, ultimately for the benefit of all parties, albeit that they might well have had viable defences. As I have said, it would be a mistake in principle to discourage defendants from taking such a course by treating it as a capitulation, when in truth it was a concession to which it was quite arguable whether the plaintiff was truly entitled.”

46. A difficulty arising from CMC is that it suggests an investigation of the merits of the claim, at least in circumstances where the first defendant, relying on Lai Qin, says this should not occur but at the same time submits that the third BWRO is not a capitulation, but is rather “an early commercial decision”. The plaintiff at the same time asserts that the third BWRO is a product of the litigation and would not have otherwise evolved.

47. The difference in the parties’ position on the third BWRO requires, I think, at least a basic investigation of the difference between the second and third BWROs.

48. Both BWROs set out a similar “Background”, including reference to the report from Zait Engineering Solutions Pty Ltd dated 6 April 2023. This report is the subject of some concern from the plaintiff because it is asserted to not deal properly with the defects, and is contrary to the RHM Report.

49. It is in the “Requirements in respect of Serious Defects” that the difference between the second and third BWROs becomes evident. The second BWRO involves the authors of the Zait Report being closely involved in the remediation work. For example, Zait to be notified of testing results and a “final work method statement”.

50. In the third BWRO, Zait plays no part in the rectification work.

51. Other important differences arise in the section entitled “Consideration of written representations”. In the second BWRO, mention is made of RHM, and its apparent views, but it is noted that no report from RHM was given to the Department. The “RHM feedback” is rejected. The second BWRO states:

“f) In relation to the submissions concerning the scope of works, no alternative scopes have been provided for consideration. Further, Mr Zaiter has sufficient qualifications and licenses to undertake the design and having reviewed the Zait report, I am satisfied that it is comprehensive and addresses the serious defects identified.”

52. The third BWRO, under the corresponding section, does not mention the Zait Report at all. While there is also no mention of the RHM Report, I am satisfied that the exclusion of the Zait Report is an indication, on the part of the Department, that it has taken into account the criticisms of the Zait Report and excluded the report, and its authors, from their close involvement in the rectification work.

53. While I accept that the first defendant brought its own mind to bear in formulating the contents of the third BWRO and did so to arrive at a form of BWRO that complied with the RAB Act, I also think it evident that in doing so, the first defendant was reacting to the long-standing complaints of the plaintiff, as expressed both in correspondence and ultimately in the commencement of the proceedings. While phrases such as “capitulation and surrender” are perhaps too harsh to describe the first defendant’s making of the third BWRO, I do think the third BWRO involves an acquiescence to the plaintiff’s persistent representations.

54. Another matter raised by the first defendant concerned the filing and serving of expert reports in the proceedings, absent any direction permitting it to do so in accordance with r 31.19 of the Uniform Civil Procedure Rules 2005 (NSW). The plaintiff had filed extensive expert material, exceeding 1000 pages.

55. The second defendant had actually filed a notice of motion on 19 February 2024, seeking a ruling that the expert evidence was inadmissible. The motion was adjourned from time to time because the parties indicated they were in settlement discussions.

56. The plaintiff accepted that it had not sought directions under the above rule, but said, in effect, that its failure to do so was a minor infringement and that directions in its favour would inevitably have been made. I think the plaintiff’s submission was bold, in particular having regard to the quantity of the material filed and the nature of the proceedings, being a judicial review.

57. In conclusion, based on the above, I find:

58. The plaintiff’s proceedings had a very good chance of success because of the failure of the first defendant to issue a notice pursuant to s 45 of the RAB Act before issuing the second BWRO. Because the RHM Report had by this time become available, and because the first defendant was aware that it was coming into existence, the plaintiff was not given procedural fairness in not being able to put the report before the first defendant. Obviously, there was also a contravention of the RAB Act.

59. The third BWRO amounts to an acknowledgement, or acquiescence, by the first defendant of the plaintiff’s concerns raised both in the long-term correspondence and by the proceedings, in regard to the contents of the first two BWROs, in particular in relation to their effective adoption of the Zait Report.

60. The above two conclusions are enough, subject to what I will say below, to entitle the plaintiff to a costs order in its favour.

61. The plaintiff was wrong to assume that it would be given affirmative directions enabling it to file the extensive expert reports without first notifying the defendants. I think this conclusion should be reflected in the costs orders that I make.

Orders

1. The proceedings are dismissed.
2. Subject to Order 3, the first defendant is to pay the plaintiff’s costs of the proceedings.
3. The costs assessed under Order 2 above are not to include any costs claimed by the plaintiff in respect of the notice of motion filed on 19 February 2024 by the second defendant or in respect of the preparation of expert reports for these proceedings.
4. The second defendant is to pay its own costs of the proceedings.

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