These proceedings were heard on 7 September 2016 and interim orders were made on that date which required the parties to prepare a scope of works and reach certain agreements as were specified in those orders. Once the parties had done the things required, I stated that I would make a work order under section 48O(1)(c) of the Home Building Act 1989.
The respondent applied for and was granted an extension of time to comply with the 7 September 2016 orders.
On 10 October 2016 I relisted the proceedings for directions because of the parties' failure to comply with the 7 September 2016 orders. The directions hearing took place on 18 October 2016 when further orders were made.
On 9 December 2016 I relisted the proceedings for further hearing providing reasons for doing so.
As a result on 22 December 2016 final orders were made including orders for submissions in the event that a costs application was made.
The applicant has applied for an order that the respondents pay her costs of the proceedings. The respondents have also applied for costs orders in their favour.
In these reasons I will refer to the applicant as the owner and to the respondents as the builder.
[2]
Jurisdiction
Section 60 of the Civil and Administrative Tribunal Act 2013 (the 'Act') provides that:
'Costs
(1) Each party to proceedings in the Tribunal is to pay the party's own costs.
(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.
(3) In determining whether there are special circumstances warranting an award of costs, the Tribunal may have regard to the following:
(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 that the Tribunal considers relevant.
(4) If costs are to be awarded by the Tribunal, the Tribunal may:
(a) determine by whom and to what extent costs are to be paid, and
(b) order costs to be assessed on the basis set out in the legal costs legislation (as defined in section 3A of the Legal Profession Uniform Law Application Act 2014) or on any other basis.
(5) In this section:
costs includes:
(a) the costs of, or incidental to, proceedings in the Tribunal, and
(b) the costs of, or incidental to, the proceedings giving rise to the application or appeal, as well as the costs of or incidental to the application or appeal.'
I only have the jurisdiction to award costs under section 60 if I am satisfied that there are special circumstances warranting an award of costs.
However, Rule 38 of the Civil and Administrative Tribunal Rules 2014 provides:
'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:
(a) the amount claimed or in dispute in the proceedings is more than $10,000 but not more than $30,000 and the Tribunal has made an order under clause 10 (2) of Schedule 4 to the Act in relation to the proceedings, or
(b) the amount claimed or in dispute in the proceedings is more than $30,000.'
By reason of Rule 38 above, I have the discretion to award costs in these proceedings by reason of the fact that pursuant to section 3 of Schedule 4 of the Civil and Administrative Tribunal Act, proceedings under the Home Building Act 1989 are allocated to the Commercial and Consumer Division of the Tribunal and that these proceedings were heard in that Division. The amount claimed by the owner in these proceedings exceeded $30,000.00.
I will deal with the owner's costs application under Rule 38 of the Civil and Administrative Tribunal Rules.
[3]
Submissions
On 17 February 2017 the owner submited that she has been almost wholly successful in the proceedings in that almost all of the defective work which she complained of was the subject of the work order made by the Tribunal. Her submissions are that it follows from that fact that costs should follow the event. Appropriate authorities are cited in support of that proposition. It is further submitted that there are no circumstances that justify a departure from that position.
On 21 February 2017 the builder filed a costs submission in which it was submitted that the Tribunal should make the following costs orders:
1. the builder is to pay the owner's costs from the commencement of the proceedings until the first Tribunal directions hearing on 18 December 2015 on a party/party basis;
2. from 18 December 2015 until 5pm on 15 August 2016 the owner is to pay the builder's legal costs on a party/party basis; and
3. from 5pm 15 August 2016 onwards the owner is to pay the builder's costs on an indemnity basis.
In support of its submissions the builder states that the owner maintained a claim for a money order but was ultimately unsuccessful since a work order was made. I do not regard the fact that, without anything more, if an owner applies for a money order for defective work but obtains a work order, that should disentitle the owner from being awarded costs. In my view the owner in those circumstances would be the successful party and as such would be entitled to a costs order, particularly if the builder had denied carrying out defective work.
The builder submits that that there are, what I would describe as additional factors which displace the general proposition that I have stated in the preceding paragraph.
The builder refers to the first direction hearing held on 18 December 2015 in these proceedings where order 9 was made as follows:
'The matter involves a claim for breach of statutory warranty by the applicant
for defective works. The parties are on notice in relation to the preferred outcome contained in section 48MA. The parties contracted at the end of 2012 and both parties agree that the builder was licensed and home warranty insurance has been provided. The matter is next listed for a directions hearing and the parties are expected to have complied with these orders and that the matter will then be listed for a formal hearing for the following occasion,'
[4]
Section 48MA of the Home Building Act
The builder submits that as from 18 December 2015 the owner was on notice about the 'preferred outcome' as contained in section 48MA of the Home Building Act but continued to press for a money order and maintained that position up to and at the hearing. In Galdona v Peacock [2017] NSWCATAP 64 the Appeal Panel stated at [65]:
'Finally, we observe that section 48MA of the Home Building Act only required the Tribunal Member to have regard to the principle that that rectification of the defective work by the appellants was the preferred outcome. Section 48MA did not make the preferred outcome the mandatory outcome.'
Since section 48MA of the Home Building Act was not a mandatory outcome, it was in my view open for the owner to exercise her right to press for a money order and to call whatever evidence she thought appropriate to that end and to make the necessary submissions for a money order as compensation for defective work carried out by the builder. In the absence of other relevant factors, I do not regard the owner's refusal to abandon her claim for a money order as conduct which would disentitle her to costs, because the building defects of which she complained were ultimately made the subject of a work order under section 48O(1)(c) of the Home Building Act.
[5]
Overpayment claim
The builder also submits that the fact that the owner abandoned her overpayment claim at the hearing should be taken into account in making a costs order in the proceedings. I would agree with that submission if it could be demonstrated that specific evidence was prepared to meet this part of the owner's case and that the costs associated with the work to prepare that evidence were wasted by the owner's abandonment of that part of her claim. However no such submission is made by the builder. In the absence of such a submission I do not regard the fact that the owner abandoned her overpayment claim at the commencement of the hearing should be taken into account in making a costs order in the proceedings.
[6]
Calderbank Offer
The builder has referred to two offers that it made to the owner in connection with these proceedings.
[7]
Offer of 5 August 2016
I will deal with the first offer made on 5 August 2016 which was 33 days before the hearing on 7 September 2016. The offer was stated to be a Calderbank Offer. It was open for 10 days. The offer contained two options. The first option was that the builder would carry out all remedial work agreed between the parties experts in conclave and at its own cost arrange for the necessary statutory approvals to be obtained. The offer contained a term that the builder would pay the owner the sum of $20,000.00 on account of her costs in the proceedings. The second option was for the payment of money by the builder to the owner which I find is not relevant for me to consider since a money order was not made in the proceedings.
The offer set out considerations which were relevant to each option and concluded by stating that if the offer was not accepted the builder reserved its rights to tender the letter in submissions on costs including in support for an application for indemnity costs.
The making of a 'Calderbank Offer' that is bettered by the offeror does not in itself entitle the offeror to an order for costs. That was decided in Jones v Bradley (No. 2) [2003] NSWCA 258.
I refer to the recent Court of Appeal decision in Miwa Pty Ltd v Siantan Properties Pte Ltd (No. 2) [2011] NSWCA 344. In that case Basten JA identified two questions which are relevant to a 'Calderbank' offer and a claim for indemnity costs. They are whether:
there was a genuine offer of compromise, and
it was unreasonable for the offeree not to accept it.
I accept that the Calderbank offer made on 5 August 2016 was a genuine attempt made by the builder to settle the owners' case. I also find that at the time the offer was made that there was a real possibility that the Tribunal would make a work order in favour of the owner contrary to the order sought by the owner. I also find that at the time the offer was made that the owner knew or should have known that the Tribunal was required to consider section 48MA of the Home Building Act before making any order.
As stated in stated in Galdona v Peacock at [48]:
'In our view the statement in section 48MA of the Home Building Act 'A court or tribunal determining a building claim involving an allegation of defective residential building work or specialist work by a party to the proceedings (the responsible party) is to have regard to' made it a mandatory requirement for the Tribunal Member to have regard to 'the principle that rectification of the defective work by the responsible party is the preferred outcome'. (underlining added)
In considering whether it was unreasonable for the owner not to have accepted the builder's 5 August 2016 Calderbank Offer, I have had regard to her solicitor's 16 August 2016 response in which it was stated on her behalf that the offer was rejected on the basis that the builder had failed to rectify defects despite opportunities to do so afforded by the owner and because the builder had commenced and carried out work on site without having obtained a construction certificate. These are issues which in my view would not have entitled the owner to have rejected the Calderbank Offer, having regard to section 48MA of the Home Building Act and the terms of the 5 August offer including the relevant considerations set out therein.
In connection with the offer of payment of costs by the builder, the owner's solicitor stated in the 16 August 2016 response that the amount offered was insufficient since the owner had incurred costs in excess of $33,000 in the proceedings to date.
In Roberts v Rodier [2006] NSWSC 1084 Campbell J stated at [9]:
'Similarly, in my view, a Calderbank offer which has as an essential element of it that the party to whom it is made agree to pay a particular sum for costs, without the opportunity for checking or assessment, could give rise to an order for indemnity costs only in circumstances where it ought to have been obvious to the person receiving the offer that the party/party costs of the offeror would be equal to or more than the sum stated in the offer. It is not established that the defendants were in that situation. They had not seen the memo of fees that was tendered on this application. It has not been shown that, by any other means, it ought to have been obvious to the defendants that the party/party costs of the plaintiff to that time would be equal to, or more than, $25,000.'
While this case is different to the facts in Roberts v Rodier in that here the party making the offer was to pay the costs offered, the same principle applies in my view so that for the offer to have been effective, it ought to have been obvious that the party/party costs of the owner were equal to or less than the amount offered. When the owner's solicitors stated on 16 August 2016 that her costs were in excess of $33,000.00, it would have been clear that the costs offer of $20,000.00 would not compensate the owner for her party/party costs at that point of time, even if were accepted that she would not recover 100% of her costs incurred to date. In that regard I do not accept the builder's submission in 10)ii that the owner would have recovered only 65% of her actual costs on an assessment. No evidence has been provided to substantiate that submission. The costs offer of $20,000.00 was 60% ofteh owner's actual costs.
As regards the owner's solicitor's statement that that her costs were in excess of $33,000.00, I have proceeded on the basis that her actual costs were $33,000.00. The precise costs incurred ought to have been known to her solicitors as at 16 August 2016. There was no attempt to mention or ascertain costs for work done but not recorded or billed as at that time. As a result I infer from those facts that there was at 16 August 2016 no work done but not recorded or billed.
I have come to the conclusion that the rejection of the 5 August 2016 offer by the owner was not unreasonable because of the fact that the builder's offer on costs was not likely to have compensated her for her party/party costs of the proceedings to that date. The builder's offer was an acceptance of the defective work agreed by the parties' experts. Had the matter proceeded to hearing, as at 16 August it seemed highly likely that the owner would have been successful and would have received an order for her costs of the proceedings to be assessed, if not agreed. In those circumstances I find that the costs offer was not likely to have bettered the costs order that the owner was likely to have achieved had the matter proceeded to a hearing.
[8]
Open offer
On 19 August 2016 the builder made an open offer of settlement to the owner 18 days before the hearing. The open offer was so far as the terms were concerned, contained in 10 paragraphs, identical to the 5 August 2016 Calderbank Offer except in relation to the issue of costs. In the 19 August 2016 open offer the amount offered to the owner in relation to costs was increased to $25,000.00. The terms of the offer dealt with the work that the builder was to carry out and provided for the builder arranging for all statutory approvals and certificates, including an occupation certificate. The offer included the builder commencing the remedial work within 30 days of the acceptance of the offer or alternatively on the execution of a deed of release. There were further provisions for notifying the Tribunal that the proceedings had settled and vacating the hearing dates and thereafter obtaining orders from the Tribunal dismissing the proceedings with no order as to costs.
Relevantly the 19 August 2016 offer did not state that if the offer was not accepted the builder would rely upon it in seeking an order for indemnity costs.
The offer was stated to be open for acceptance until 5pm on Friday 26 August 2016. I accept that the offer was a genuine offer made in an attempt to settle the proceedings and to limit the costs of the litigation for the benefit of both of the parties.
The offer was unclear in one respect, namely whether it was necessary for the parties to execute a Deed of Release. Paragraph 5 suggested that the parties could proceed by the acceptance of the offer, or by way of a deed of release. Paragraphs 9 and 10 were based on an assumption that that a deed of release would be executed. I do not attach any great consequence to that uncertainty. The offer contained terms capable of being accepted which would have provided certainty even if a deed of release was not executed. In particular paragraph 9 provided that the parties should co-operate to give effect to the terms of settlement which provided the necessary flexibility to allow the settlement to be facilitated in an effective manner.
The owner did not respond to the builder's 19 August 2016 open offer of settlement except that her solicitors replied on 25 August stating that she was overseas, un-contactable and due to return to Australia on 2 September 2016. While the owner was free to travel as she wished before the hearing and chose to be out of contact with her solicitors, I do not regard that to be a factor to be taken into account in determining whether it was reasonable of her not to have accepted the open offer. If parties to litigation were permitted to absent themselves before a final hearing, making a failure to respond to a settlement offer reasonable by reference to that absence, that would in my view unjustifiably render the making of settlement offers in that important time, futile.
The position as at 19 August was that the builder had been told on 16 August that the owner had incurred costs in excess of $33,000.00. The builder increased his offer to $25,000.00 which was 75% of the owner's actual costs to date. I find that this amount was obviously a reasonable amount for the owner to have been offered at that time as compensation for her party/party costs in the proceedings which her solicitors stated were $33,000.00. While the owner may have received more on an assessment there is no evidence to that effect. Having regard to the uncertainties and additional expense that would inevitably accompany a costs assessment, I conclude that recovering 75% of incurred costs was a reasonable outcome for the owner.
I have stated above that I have had regard to the fact that the 5 August 2016 offer was rejected because the builder had failed to rectify defects despite opportunities to do so afforded by the owner and because the builder had commenced and carried out work on site without having obtained a construction certificate. I do not regard that position to have been reasonable as at 19 August 2016 having regard to the terms of the builder's offer combined with the fact that there was an issue in the proceedings that the Tribunal was obliged to consider section 48MA of the Home Building Act which stated that rectification of defects was the preferred option. In referring to the builder's offer, I am referring to the fact that the builder offered to at his own cost:
1. carry out the required remedial work agreed between the experts in conclave as described in the handwritten signed conclave document and the 'Notes from the Conclave of Experts' held on site on 10 June 2016;
2. undertake the lowering and reconstruction of the floor of the deck as referred to at 1(i) of the Notes from the Conclave of Experts' as set out in the report of Robert Herbertson dated 15 April 2016 at 5.2.8;
3. arrange for the deepening of the two saw cut joints referred to it 3.(1)(a) of the Notes from the Conclave of Experts as set out in the expert report of Robert Herbertson dated 15 April 2016 at 5.4.3(c); and
4. arrange for all statutory approvals and certificates required by the Kuring-Gai Council including any occupation certificates and approvals of what was then the subject of the Council's 'demolition order'.
It was a term of the open offer that the builder was to complete the remedial works within 30 calendar days following commencement.
[9]
Conclusion
The terms of the 19 August 2016 open offer were not identical to the final orders of the Tribunal dated 22 December 2012. They were however substantially similar to the Tribunal orders as regards the:
1. rectification work to be carried out;
2. builder's obligation to obtain the relevant statutory approvals; and
3. builder's obligation to obtain an occupation certificate.
The open offer did not 'better' the final orders of the Tribunal. However in proceedings where the competing positions were a money order and a work order, the concept of an offer 'bettering' the final Tribunal orders does not accurately allow a comparison of the competing positions as would be the case where a monetary offer is compared to a final monetary finding. In my view the open offer was substantially similar to the Tribunal's final orders. I also find that the owner did not obtain a result that was in any way substantially better than the substance of the open offer.
I find that it was unreasonable for the owner to have refused the open offer because of the fact that the builder had agreed to carry out all of the relevant work and to obtain all the necessary council consents and approvals including an occupation certificate. The benefits of the open offer were fully explained in the offer. There was also the fact that the builder was contending for a work order which was the preferred outcome under the Home Building Act although not a mandatory outcome. As such the owner was at risk that the Tribunal would, as it did, make a work order. I have also found that the costs offer contained within the open offer was obviously a reasonable offer to compensate the owner for her party/party costs as she would have achieved on an assessment on the ordinary basis as at 19 August 2016.
As a result of my finding that it was unreasonable for the owner to have refused the open offer, I will make a costs order in favour of the builder as from 26 August 2016. The date of 26 August 2016 is relevant as it was open for the owner to consider and accept the 19 August 2016 open offer by that date.
The builder has applied for its costs of the proceedings as from the date of the open offer on the indemnity basis.
A failure to accept a calderbank offer does not, as pointed above, entitle the offeror to costs merely because the offer betters the actual outcome. The same can be said as regards indemnity costs. In Jones v Bradley (No. 2) The Court of Appeal referred to the position in the Federal Court that the non-acceptance of a Calderbank Offer did not automatically lead to an indemnity costs order. The Court of Appeal stated:
'In MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FCR 236 Lindgren J said at page 239:
"It is important, however, to appreciate that the mere making of an offer by a Calderbank letter and its non-acceptance followed by a result more favourable will not automatically lead to the making of an order for payment of costs on an indemnity basis."
His Honour said the manner of exercise of the discretion "depends on all relevant circumstances of that case". His Honour's view reflected the jurisprudence in the Federal Court at the time: see WCW Pty Ltd v Charthill Ltd (unreported, Federal Court, Olney J, 7 July 1992); John S Hayes& Associates Pty Ltd v Kimberly-Clark Australia Pty Ltd (1994) 52 FCR 201; and has continued to be applied in that Court: see The Sanko Steamship Co Ltd v Sumitomo Australia Ltd (unreported, Federal Court, Sheppard J, 7 February 1996) and NMFM Property v Citibank [2001] FCA 480; (2001) 109 FCR 77.
8 This principle has also been enunciated in this Court. In SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 Giles JA stated at para 37:
"The making of an offer of compromise in the form of a Calderbank Letter ... where the offeree does not accept the offer but ends up worse off than if the offer had been accepted, is a matter to which the court may have regard when deciding whether to otherwise order, but it does not automatically bring a different order as to costs. All the circumstances must be considered, and while the policy informing the regard had to a Calderbank letter is promotion of settlement of disputes an offeree can reasonably fail to accept an offer without suffering in costs. In the end the question is whether the offeree's failure to accept the offer, in all the circumstances, warrants departure from the ordinary rule as to costs, and that the offeree ends up worse off than if the offer had been accepted does not of itself warrant departure."
It appears that Priestley JA, by his Orders in this case, would endorse this approval. But in any event, the principle has been applied in the Supreme Court both at first instance and on appeal: see Enron Australia Finance Pty Limited (in liquidation) v Integral Energy Australia [2002] NSWSC 819; Nobrega v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney (No 2) [1999] NSWCA 133; LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74; and Cummings v Sands [2001] NSWSC 706.
9 It is worth pausing to note that the difference between the two lines of authority may be "more apparent than real" as in either approach the Court must consider all the circumstances of the case: see CBA Investments Limited v Northern Star Limited (No 2) [2002] NSWCA 164. Be that as it may, we consider that the approach taken by the Court in SMEC Testing Services is correct and is the approach which should be consistently applied when dealing with Calderbank offers.'
In considering whether I should make an order for costs on an indemnity basis I have had regard to the fact that as stated, the 19 August 2016 offer did not state that if the offer was not accepted the builder would rely upon it in seeking an order for indemnity costs. Because it was not made plain that a failure to accept the offer would attract an application for costs on an indemnity basis, I have decided to make the costs order in favour of the builder on a party/party basis.
I will make an order that the builder must pay the costs of the owner up to and including 26 August 2016 on a party/party basis such costs if not agreed to be assessed pursuant to the provisions of the Legal Profession Uniform Law Application Act 2014.
I will also make an order that the owner must pay the builders costs on a party/party basis as from 27 August 2016, such costs if not agreed to be assessed pursuant to the provisions of the Legal Profession Uniform Law Application Act 2014.
D Goldstein
Senior Member
Civil and Administrative Tribunal of New South Wales
10 April 2017
[10]
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
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Decision last updated: 07 June 2017