The Owners - Strata Plan No. 96841 v KF Developments Pty Ltd

Background

1. An application dated 11 May 2020 was lodged because the two-year limitation period for defects which are not major defects was about to expire. That application sought either a work order or a money order and the amount claimed was $150,000.
2. While leave for both parties to be legally represented was granted on 24 July 2020, the parties were warned costs may outweigh the amount in issue. On 12 August 2020 directions were made for Points of Claim and Points of Defence to e filed and served as well as the documents upon which the parties intended to rely at the hearing. Even at that early stage, it was noted on the Tribunal's file that the parties were well advanced in narrowing the issues.
3. On 7 October 2020 extensions of time were granted and the second directions hearing, which was to have been held on 5 November 2020, was adjourned to a date after 17 April 2021.
4. On 26 March 2021 further extensions of time were granted and the allocated date for the second directions hearing of 19 April 2021 was also vacated.
5. On 8 April 2021 it was noted that the parties had arranged for an informal settlement conference on 1 July 2021 and directions were made to ready the application for hearing.
6. A hearing dated of 13 July 2021 was then allocated but that was revised by the Registry to 9 September 2021. However, on 22 June 2021 that hearing date was vacated and a new hearing date of 14 October 2021 was allocated.
7. On 14 October 2021, orders were made by consent and those orders included provision for the submission of documents by the parties in relation to any application for costs.

Applicant's case

1. Submissions lodged by the applicant contended that an order for costs should be made in favour of the applicant on four grounds: (1) "the Applicant was compelled to commence the Proceedings by reason of the Respondents' failure to rectify defects in any meaningful way", (2) "the Applicant would almost certainly have succeeded in the Proceedings (at least to a significant extent)", (3) the Respondent "effectively capitulated", and (4) the Respondents' conduct has been unreasonable and has caused the Applicant unwarranted expense.
2. The documents submitted for the Applicant in support of the application for costs were (1) an affidavit of Ms Baldwin, (2) extracts from an exhibit said to involve more than 1,000 pages, (3) a table said to identify incomplete rectification works, (4) a Joint Scott Schedule, and (5) a letter from the Applicant's solicitors to the Respondents' solicitors dated 10 August 2020.
3. It was contended that costs, in this instance, were governed by rule 38(2)(b) of the Civil and Administrative Tribunal Rules 2014, not s 60 of the Civil and Administrative Tribunal Act 2013, with the result that it was not necessary to show that there were special circumstances warranting an order for costs. Reference was made to Ibrahim v Peri Australia Pty Ltd [2013] NSWCA 328 at [17] - [19] and Cubic Metre Pty Ltd v C & E Critharis Constructions Pty Ltd [2019] NSWCATAP 130 at [25] in support of the proposition that the relevant considerations included whether the party acted reasonably in commencing the proceedings and whether that party seeking costs had an almost certain chance of success.
4. Given that the Applicant submitted more than 300 pages of evidence and 18 pages of written submissions, it is necessary to summarise the contents of those documents. The affidavit of Ms Baldwin, prepared for the final hearing, detailed events from March 2017 until the commencement of the proceedings in May 2020. A Scott Schedule of more than 140 pages set out 146 items and for 132 of those items the response was "Agreed by Builder" with the result that there appears to have only been an issue in relation to 14 items which is about 10% of the total number of items in the Scott Schedule.
5. The 10 August 2020 letter from the applicant's solicitors included the words: We have been advised the builder has approached our clients to attend to undertake rectification work, however, we are instructed our cleints would prefer that the builder not attend to rectify defects until the scope of works is agreed and the matter is settled by way or a work order granted by the Tribunal.
6. It is also noted that it was not until 25 March 2020 that the applicant retained an expert to prepare a defect report, which was sought just prior to the expiry of the limitation period for defects which are not major defects.
7. As to the first ground, it was submitted that if the application had not been filed when it was, the applicant would have been unable to claim for non-major defects.
8. In relation the second ground, it was suggested, by reference to the Scott Schedule, that the Respondents would have been found liable to the Applicant under the provisions of the Home Building Act 1989 (HBA).
9. In respect of third ground, it was conceded that the Respondent had undertaken rectification work but contended that the Respondents' consent to a work order involved a concession that there were defects which required rectification. It was submitted that the outcome in this case was analogous to the position in Owners Strata Plan 73162 v Dyldam Developments Pty Ltd [2014] NSWSC 1789 (Dyldam) in that the applicant had achieved, by settlement, the outcome it was seeking at the hearing. Further, that the Applicant should not be put in a worse position as to costs than if the matter had proceeded to a hearing.
10. The final ground was that the "Respondents' conduct had been unreasonable and had caused unwarranted expense". It was said there was a 16 July 2020 conclave which addressed agreed but not disputed items. That was said to be the context in which the 10 August 2020 letter was sent, and it was asserted there was no response to the offer contained in that letter. As a result, expert reports were obtained in relation to the 14 out of 146 items that remained in dispute, but which were subsequently included in the work order that was made by consent.
11. It was acknowledged that the Respondents had undertaken rectification work but contended that should be either not considered or given little weight as the owners were required to give the Respondents an opportunity to minimise the damages payable by them for the cost of rectifying defects. The submissions did refer to Owners Strata Plan 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067 at [44] and Owners Strata Plan 78465 v M D Constructions Pty Ltd [2016] NSWSC 162 at [28] but did not refer to s 48MA of the HBA, instead suggesting "the Applicant were (sic) under no obligation to engage the Respondent (sic) to perform the work, and the Tribunal would likely not have required it to do so."

Respondents' case

1. The respondents' submissions began by reminding the Tribunal that first instance decisions each depend on their own facts and suggested that the Tribunal should make no order as to costs so that each party bears their own costs. In short, the response to the four grounds upon which the applicant relied were as follows.
2. First, the appellant was not compelled to commence the proceedings as the respondent builder had been carrying out rectification work since the issue of the Occupation Certificate and that the dispute related to the method of rectification for a small number of items which was ultimately resolved.
3. Secondly, the applicant would not "almost certainly" have succeeded as the agreed rectification method was less destructive and less costly than proposed by the applicant. Further, that the Tribunal should not engage on a hypothetical trial: ONE.TEL Ltd v Deputy Commissioner of Taxation [2000] FCA 270 at [5], which cited Australian Securities Commission v Aust-Home Investments Ltd [1993] FCA 585, 44 FCR 194 at 201 and Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin [1997] HCA 6, 186 CLR 622 (Lai Qin) at 624.
4. Thirdly, it was said the respondents did not capitulate. It was contended that, in July 2020, the applicant asserted there were 312 defects before it was agreed that 173 of those matters were not defects and did not need to be rectified. As the respondent builder agreed to rectify 119 defects, only about 20 remained and the outcome in relation to those disputed defects involved a compromise by both parties.
5. Fourthly, the conduct of the respondents was not unreasonable because the applicant had commenced proceedings unnecessarily and prematurely.
6. After noting that the proceedings related to a six-level residential building in Sutherland with two basement levels and 30 apartments, the respondent noted that (1) the Occupation Certificate was issued on 22 May 2018, (2) the strata manager began advising the respondent builder of alleged defects in June 2018 and the strata plan was registered on 12 August 2018. A summary was provided of what work was done and when during the period from 14 June 2018 to 14 April 2021. By way of summary, there was attendance to undertaken repairs on 33 occasions over a period of 23 months.
7. The evidence provided for the respondents was that work with a value of $150,000 had been done at a cost of more than $90,000. It was said that the respondent builder had always, both before and after the proceedings were commenced, been ready, willing, and able to rectify defects up to and including when the proceedings were settled.
8. It was noted that on 10 June 2020 the applicant was requested to provide a copy of its defects report before the Points of Claim were served. That led to a conclave which removed 173 of the 312 alleged defects and result in agreement as to 119 of the remaining alleged defects. The dispute as to the remaining items was said to be as to the method of rectification that was resolved, by way of compromise, without the need for a hearing.
9. Further, it was contended that the applicant could have sought a contractual commitment to rectification work instead of relying on a claim based on statutory warranties which carried a limitation period.
10. The respondent contended that the decision Dyldam was fact specific, and it is noted (1) the catchwords support that proposition, (2) that the builder in that case refused to agree to undertake proposed works, and (3) refused to agree to supervision of that work, (4) which refusal was considered to have been without justification.
11. As to the operation of Rule 38(2)(b), it was conceded that costs normally follow the event, but it was submitted there was no "event" in this instance. The following passage from the judgement of McHugh J in Lai Qin was quoted: The court cannot try a hypothetical action between the parties. To do so would burden the parties. To do so would burden the parties with the cost 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 behaved so unreasonably that the other party should obtain the costs of the action … If it appears that both parties 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 discretion will usually mean that the court will make no order as to the costs of the proceedings. This approach has been adopted in a large number of cases.
12. The respondents also referred to Edwards Madigan Torzillo Briggs Pty Ltd v Gloria Stack [2003] NSWCA 302 (Edwards) at [5] which stated: When proceedings are brought to an end without a determination after trial, the judge may find it difficult, even impossible, to make an award of costs. if the judge does make an award, it will generally be because the judge is satisfied that one party has had a substantial victory and the other party a substantial loss, or that there has been a marked difference in the reasonableness of the actions taken by the parties, so that one party should be rewarded for its reasonable actions and the other party should suffer a detriment in costs.
13. As to the principle that costs follow the event, it was noted that it had been observed in Hansen v Monterey (Coolah) Pty Ltd [2012] NSWSC 1383 at [29] that identifying the relevant event: … requires a consideration to be given to the practical outcome of the proceedings, that is, by reference to who the successful party was, having in mind the matters over which the parties joined issue, and who succeeded on them. That is not necessarily the party who has had an order made in their favour in the proceedings.
14. Thus, the respondents' case was (1) there was no determination, (2) the respondents' behaviour was reasonable, (3) there was no victory or loss, and (4) it could not be said that the applicant would "almost certainly" have succeeded.

Consideration

1. It is to be noted that a covering letter, dated 11 May 2020, was sent with the application to indicate that the two year limitation period for non-major defects was about the expire. The Tribunal considers that was the reason which compelled the filing of the application and not the conduct of the Respondents. The Applicant commenced these proceedings without any complaint to Fair Trading NSW, which could have produced an outcome of the kind that was ultimately achieved, and without engaging in mediation, which also could have produced an earlier, comparable outcome.
2. Further, there had been rectification work carried out within a month of the issue of an Occupation Certificate and more than a month prior to the registration of the strata scheme. In those circumstances, the Tribunal rejects the suggestion that the Applicant was compelled to commence these proceedings by the conduct of the Respondents.
3. Secondly, it was suggested the Applicant would "almost certainly" have succeeded although that submission was qualified with the words "at least to a significant extent". The Tribunal accepts that if the subject application had proceeded to a hearing then the Applicant would have succeeded in obtaining a work order. However, the Respondents were not opposing a work order and the real issue between the parties was the method of rectification for less than 10% of the number of defects originally alleged.
4. Indeed, s 48MA of the HBA establishes a statutory preference for any defective work to be rectified by whoever carried out that work. In Galdona v Peacock [2017] NSWCATAP 64 the Appeal Panel suggested that a work order would not be appropriate where (1) the relationship between the parties has broken down, (2) the builder has not acknowledged a poor standard of work, and/or (3) there are reservations as to the ability of the builder to rectify the work with due care and skill. This case does not fall within any of those categories.
5. Even without engaging in a hypothetical trial, it is sufficiently clear, from the documents submitted by the parties in relation to costs, a work order would be made had this matter proceeded to a contested hearing. The only contested issue at the hearing would have been the method of rectification for a limited number of conceded defects.
6. That being the case, the Tribunal does not accept that it can be said the Applicant would have succeeded if the application had proceeded to a contested hearing. It is neither possible nor appropriate to make an assessment as to whether the agreed method of rectification was close to what the Applicant sought, or was similar to what the Respondents contended, so as to be able to assess the nature or extent of any compromise.
7. As to the allied submission that the Respondents "effectively capitulated", the inclusion of the adjective is noted. For the reasons indicated above, the fact that a work order was made by consent does not indicate capitulation when the live issue was the method of rectification of a limited number of conceded defects.
8. The Tribunal is not satisfied that the Respondents' conduct was unreasonable by reason of the following matters: 1. Undertaking rectification work soon after the issue of an Occupation Certificate and well prior to the commencement of the proceedings. 2. The Applicant deprived the Respondents of an opportunity to mediate prior to the commencement of the proceedings. 3. On 10 June 2020, even before Points of Claim were filed and served, the Respondents sought a copy of the defects report which is a clear indication of a preference for rectification over litigation. 4. In July 2020 the Applicants asserted there were 312 defects but it was then agreed that 173 of those matters were not defects. 5. Of the 146 items in the 140 page Scott schedule provided in the Applicant's documents, 132 had the response "Agreed by Builder". 6. The issue in relation to the remaining 14 items appears to have been the method of rectification. 7. On 10 August 2020 the Applicant's solicitor directed that no further rectification work be carried out which served to not only stop rectification work but also to increase the costs now claimed.
9. It appears to the Tribunal that this case, consistent with what was said in Lai Qin (quoted above), that these proceedings should be added to the large number of cases in which no order is made as to the costs of the proceedings since the conduct of the respondent has been reasonable. Further, by reference to what was said in Edwards (also quoted above), this does not present as a case where the Applicant had a substantial victory and the Respondents had a substantial loss nor is it a case where a consideration of the conduct of the parties warrants the Respondents being subject to the detriment of an order for costs.

Orders

1. For the reasons set out above, the following orders are made: 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. Each party is the pay their own costs of the application.

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: 15 March 2022