X-Build Construction Services Pty Ltd v O'Rourke

The Costs Decision Must Be Set Aside

1. The Costs Appeal must succeed although not for any reason advanced by the appellant Builder who wrongly submitted the Tribunal lacked jurisdiction to make the Costs Decision. The Builder wrongly submitted that, because there was a stay in relation to the filing and service of submissions as to costs, that therefore the Tribunal was stayed from determining the costs issues.
2. Be that as it may, in our opinion the making of the Costs Decision when the Builder was prevented by an order of the Appeal Panel from filing and serving submissions and evidence in response to the Owners' application for costs (at least for the full period allowed for such things to be done) wreaked, albeit entirely innocently given the ignorance of the stay, a procedural unfairness upon the Builder.
3. In relation to the costs of the hearing at first instance, the Owners had made their application for costs within time and before the stay, and no application for costs was made by the Builder within the time allowed and which had expired before the stay orders were obtained. The only remaining matters were the filing and service of submissions and evidence in relation to the Owners' application for costs.
4. However, the stay obtained by the Builder prevented it enjoying the totality of the time allowed for filing and serving submissions and evidence in relation to the Owners' costs application, and thus in our view resulted in a denial of procedural fairness to the Builder, albeit occurring entirely innocently.
5. The remedy for a denial of procedural fairness is a new hearing. A new hearing will only be refused if the respondent can demonstrate that a properly conducted hearing could not possibly have produced a different result - Stead v State Government Insurance Commission [1986] 161 CLR 141 per the Court at p.147.
6. The Owners submitted that there was no possibility of a different result, but we do not agree that such a high bar has been met in this case.
7. Accordingly, and the parties did not cavil with what we have outlined above when it was put to them as our preliminary thinking at the commencement of the hearing on 18 January 2021, the Tribunal's Costs Decision must be set aside.
8. The next question would be the relief to follow the setting aside of the Costs Decision. In the circumstances of this case we considered the most appropriate course would be for us to determine the issue of costs at first instance as we are empowered to do pursuant to s 81 of the Civil and Administrative Tribunal Act 2013 (NSW) (the "NCAT Act"). Both parties consented to that course and were in favour of it.
9. In our reasons which follow we shall first decide the question of costs of the first instance hearing, then the costs of the Principal Appeal and then the costs of the Costs Appeal.
10. We have already recorded various facts relevant to those determinations earlier in these reasons and won't repeat them unless necessary. Any additional relevant facts will be identified below.

Evidence and Offers

1. The Builder tendered the statement of David Pelzman dated 5 November 2020 which contained a number of paragraphs which amounted to no more than submissions, a deal of evidence irrelevant to the costs issues (such as the progress of rectification works agreed to be undertaken by the Builder), various offers of settlement (to which we have referred earlier in these reasons) and some evidence going to the issue of whether the total cost to the Builder of rectifying the work it had been ordered to rectify (which the Builder said had been completed satisfactorily) was less than the sum offered.
2. In response, the Owners read the affidavit of the first respondent sworn 11 December 2020. In this affidavit the first respondent challenged the evidence of the Builder that the rectification work had been completed satisfactorily and attached various offers of settlement (to which we have referred earlier in these reasons).
3. In reply, the Builder tendered the statement of David Pelzman dated 17 December 2020. In this affidavit Mr Pelzman challenged various assertions made by the first respondent in his affidavit.
4. The primary purpose of the Builder's statements were to prove that the cost to it of rectifying the work was less than the sum he had offered the Owners on 14 August 2019. But the cost to a builder of rectifying work would not ordinarily be the same as the cost to a home-owner obtaining independent tradespeople to do the same work. What the Builder needed to prove was what it would have cost the Owners to have rectified the same work, and that he did not do.
5. Further, on the evidence, there was a dispute between Mr Pelzman and the first respondent whether the rectification work had been completed, and completed satisfactorily. It was the Builder seeking to prove that the cost of the (satisfactorily completed) work was less than the offer made, and so the Builder bore the onus of proof on that issue in accordance with the general maxim that he who asserts must prove. Yet the Builder did not cross-examine the first respondent on the first respondent's evidence to the effect that the work had not been satisfactorily completed. Therefore, we are unable to resolve that factual issue at all, let alone resolve it in favour of the Builder.
6. In those circumstances we are unable to determine whether any of the Builder's offers made on 14 August, 1 October and 8 November 2019 were greater in amount than what it would probably have cost the Owners to rectify the relevant work at the time those offers were made.
7. We are also unpersuaded that it was unreasonable of the Owners to not accept any of the Builder's offers. More is said on this issue below.
8. We are similarly unpersuaded that the Owners' offers of 20 September and 22 October 2019 represented a better outcome for the Owners than that which they eventually received. The offer of 20 September 2019 suffers in that it does not represent a settlement of the entirety of the proceedings, and we are not persuaded that it was unreasonable of the Builder not to accept either offer.
9. The Owners' offer dated 4 September 2020 only offers to settle the question of costs, and so was not an offer to settle the entirety of the proceedings to which that letter refers. Nor are we persuaded that the Builder acted unreasonably in not accepting this offer.
10. The result of all that we have just said is that we do not consider any of the offers to which we have referred are relevant to the costs decisions we are to make. The sole remaining offer, that made by the Owners on 26 November 2020 (see [47] above) is, in our opinion, relevant. We shall say more about it below when dealing with the costs of the Costs Appeal.

The Builder's Submissions

1. The Builder submitted that it should be awarded the costs of the proceedings at first instance.
2. The Builder referred to s 60 of the NCAT Act, the section that provides that costs may be awarded in special circumstances. However, s 60 is irrelevant because rr 38 and 38A of the NCAT Rules applies because of the amounts claimed by the parties and thus special circumstances are not required to exist before a costs award may be made.
3. In its submission the Builder focused almost exclusively on what remained in issue between the parties after agreement had been reached on many other issues and as reflected in the consent orders of 17 December 2019. However, we are concerned with the costs of the proceedings rather than costs of part of the proceedings.
4. The Builder submitted that the Owners had materially and unnecessarily increased what would otherwise have been the cost of the proceedings. This was a submission directed to the principle that a party's conduct may disentitle it to costs.
5. In Northern Territory v Sangare (2019) 265 CLR 164; [2019] HCA 25 the Court said, at [25] (footnotes omitted): "A guiding principle by reference to which the discretion is to be exercised - indeed, "one of the most, if not the most, important" principle - is that the successful party is generally entitled to his or her costs by way of indemnity against the expense of litigation that should not, in justice, have been visited upon that party. The application of that principle may be modified or displaced where there is conduct on the part of the successful party in relation to the conduct of the litigation that would justify a different outcome. For example, a successful defendant may be refused its costs on the ground that its conduct induced the plaintiff to believe that he or she had a good cause of action. But in the present case, there was nothing of this kind in the conduct of the appellant in relation to the litigation that might have weighed against the exercise of the discretion in its favour. There was no suggestion of any conduct on the part of the appellant, whether by unreasonable delay or a want of the cooperation required of litigants to ensure the "just resolution of the real issues in civil proceedings with minimum delay and expense", that might have been taken into account to justify refusing the appellant an order for its costs.
6. However, other than making that allegation, the Builder did not identify what it was that the Owners had done in the proceedings at first instance which had materially and unnecessarily increased what would otherwise have been the cost of the proceedings. We can see no factual basis for this submission, and none was identified, and we reject it.
7. The Builder relies upon its Calderbank offer dated 14 August 2020 in which the Builder offered to pay to the Owners the sum of $26,000, with both parties to pay their own legal costs. The Builder said that the terms of settlement would be reduced to a Deed (although the terms were not specified) and payment would be made within 14 days of receipt of a duly executed Deed.
8. As we have said earlier in these reasons, we are not satisfied that the amount offered was greater than it would have cost the Owners to rectify the work.
9. Further, we are not satisfied that the Owners acted unreasonably in failing to accept this offer.
10. The Builder also seems to submit that because it succeeded on the appeal then it was therefore entitled to costs of the proceedings at first instance because of that appellate success. The appellant relies upon the terms of s 60(5)(b) of the NCAT Act which says: (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.
11. We reject this submission. First, s 60 does not apply to this case because of the operation of rr 38 and 38A of the NCAT Rules.
12. Second, the Builder confuses the power an Appeal Panel has to make costs orders in relation to first instance decisions with the discretion to do so. The outcome of an appeal does not mandate that certain costs consequences will automatically apply to the costs at first instance.
13. The Builder also submits that, as a general proposition, costs follow the event and the "event" refers to the practical result of a particular claim or appeal, citing Rekrut at [21]-[23]. We generally agree with those submissions.
14. The Builder cites the well-known case of Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 which is authority for the proposition that where there are multiple issues in a case a court generally does not differentiate between issues on which a party was successful and those upon which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between issues on which that party was successful and those upon which it failed.
15. The Builder then submitted there were four defects in dispute before the Tribunal, being those four identified in paragraph 4 of the consent orders of 17 December 2019 (set out at [26] above). In relation to those four defects, the Builder submitted it was successful in relation to two of those defects, being defects no. 3 and 8.
16. On the remaining two issues upon which the Builder failed, it appealed one (being defect 24) and succeeded in relation to that defect. Therefore, the Builder submitted, because it had succeeded overall on three of the four defects contested at the hearing at first instance, it was the successful party.

The Owners' Submissions

1. The Owners rely upon the same submissions as were made by them to the Tribunal at first instance. They cite a number of authorities setting out more or less the same principles applying to costs as those identified by the Builder.
2. In addition, they refer to the principle that the usual costs order to be made in circumstances where there has been no hearing on the merits, is that there should be no order as to costs, citing the decision of White J, as his Honour then was, in Ferguson v Hyndman [2006] NSWSC 538. That principle is well-recognised and is often traced back to the judgment of McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622. This principle is relevant because many issues were apparently settled by consent (see the Orders of 17 December 2019 set out at [26] above).
3. The Owners submit that the Builder only accepted liability for the majority of the defects on the first day of the hearing, and that, generally speaking, the Owners were successful on the majority of the defects.
4. The Owners submitted the second respondent should be awarded indemnity costs in relation to the Builder's underpayment claim because she should never have been a party to the proceedings because she was not a party to the Contract.

Decision

1. In our opinion it is appropriate that there be a single costs order for the reasons given by the Tribunal at first instance (see at [39] above - and who was in the best position to make such an assessment).
2. In our opinion the Builder should pay the Owners' costs of the proceedings at first instance as agreed or assessed.
3. The Owners were the successful party on the majority of defects, the Builder only conceding liability for many of the defects on the first day of the hearing.
4. We apply the principle in Bostik that a tribunal generally does not differentiate between issues on which a party was successful and those upon which it failed unless a particular issue or group of issues is clearly dominant or separable, and in our opinion there were no clearly dominant or separable issues.
5. In Vella v Mir (No 3) [2020] NSWCATAP 17 the Appeal Panel succinctly stated some further propositions in relation to dominant or separable issues with which we respectfully agree and apply in this case (we have highlighted them in bold). The Appeal Panel said: "[31] Generally, costs are awarded in favour of the successful party based on the outcome of the proceedings as a whole, without differentiating between particular issues on which the party may not have been successful. That said, a different costs order may be made if the losing party succeeds on significant issues: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [31]-[36]; Sydney Ferries v Morton (No 2) [2010] NSWCA 238 at [10]-[12]. The dollar amount of a particular claim does not determine its dominance in the proceedings. Rather, regard must be had to all of the work involved in prosecuting and defending the parties' various claims, including but not limited to the time taken up at the hearing. [32] In Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) (2011) 288 ALR 385, Campbell JA (with Macfarlan JA and Young JA agreeing) held at [107] that an issue or group of issues is "clearly dominant" when it is clearly dominant in the proceedings as a whole. In that case, the approach by counsel to analysing the percentage of costs between the parties - counting the proportion of paragraphs and pages devoted to each factual topic - was held at [84] to be "a highly artificial way of proceeding" which gave "a false air of mathematical precision". [33] In relation to separable issues, a successful party's entitlement to the whole of the costs of the proceedings should not be discounted to allow for another party's success in a separate issue that played a very minor part in the proceedings as a whole: Macourt v Clark (No 2) [2012] NSWCA 411 at [7]. Further, in Hawkesbury District Health Service Ltd v Chaker (No 2) [2011] NSWCA 30 at [14], the Court of Appeal held that the severability of one issue on which the successful party failed is not, without more, sufficient to warrant departure from the general approach. The exercise of discretion will often depend upon matters of impression and evaluation: Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373 at [11]."
6. The Tribunal at first instance did not regard any issue or group of issues as clearly dominant or separable (at [22] of its reasons), and it was in a better position than us to make that assessment. But in any event our own assessment is that that observation is correct having regard to the work involved in prosecuting and defending the parties' various claims as revealed in the evidence and submissions. There were no clearly dominant issues or groups of issues, nor clearly separable issue of any magnitude.
7. We reject the Builder's submission that it was successful on three of the four issues. First, it is erroneous to consider the outcome of the hearing at first instance and the appeal as a conglomerate. Each proceeding is a separate proceeding and is considered separately and on its own merits - cf Allen at [32]-[41].
8. Rather, the Builder failed on the majority of issues at first instance. What happened on the appeal will be considered when we turn to the costs of the Principal Appeal.
9. In all of those circumstances it is appropriate that the successful party receive an award of costs in its favour.

The Builder's Submissions

1. The Builder submitted that it should be awarded the costs of the Principal Appeal.
2. The Builder submitted that this appeal arose, first and foremost, because of the attempt by the Owners to take unreasonable and unfair advantage of the imprecision of Order 1 made by the Tribunal in its Principal Decision on 22 April 2020. It was further submitted that the Owners' Reply made a claim which had no tenable basis in fact or law.
3. We can see no factual basis for this submission, and none was identified, and we reject it. Although the Owners adopted a position with which we ultimately disagreed, there is no evidence, nor was such a serious proposition put to any witness, that the Owners were acting unreasonably or unfairly.
4. The Builder submitted that the Owners had materially and unnecessarily increased what would otherwise have been the cost of the appeal. Other than making that allegation, the Builder did not identify what it was that the Owners had done in the appeal which had materially and unnecessarily increased what would otherwise have been the cost of the appeal. We can see no factual basis for this submission, and none was identified, and we reject it.
5. The Builder also submitted that it was successful in its "primary purpose and the event" whereby the Appeal Panel properly determined the number of stains to be rectified in the kitchen there is no reason why the Appeal Panel should depart from the usual order that costs follow the event and the Builder should have its costs of the Appeal.

The Owners' Submissions

1. The Owners submitted that the Builder failed on three out of the four grounds of appeal, and succeeded on the fourth on a basis not argued by the Builder.
2. Therefore, the Owners submitted, fairness should result in an award of costs to the Owners.
3. The Owners said that the following factors required consideration: 1. The failure of the Builder's arguments to be accepted in their entirety. 2. The failure of the Builder to provide any expert evidence as to the number, location, extent or even existence of any further stains in the kitchen. 3. The conduct of the Builder in failing to provide expert evidence in relation to the specification or photos the subject of one ground of appeal. 4. The conduct of the Builder in prosecuting some grounds of appeal which were doomed to fail. 5. The conduct of the Builder in prosecuting other grounds of appeal which had no logical basis.

Decision

1. On an appeal from a decision to which r 38 of the NCAT Rules applies, an Appeal Panel applies the same first instance costs provisions when deciding whether to award costs in relation to the appeal - r 38A of the NCAT Rules, Allen at [23]. In this case that means we apply s 60 as relevantly modified by r 38(2), when deciding whether to award costs of the appeals. The result is that even though the first instance claims were greater than $30,000 and therefore r 38(2)(b) applied, the same may not be true of the appeal. That is, if the amount claimed or in dispute on the appeal was not $30,000 or greater, than s 60 would apply unmodified.
2. It follows that we can: 1. award costs even in the absence of special circumstances for the appeal if "the amount claimed or in dispute in the proceedings is more than $30,000"; or 2. award costs for the appeal if the amount claimed or in dispute is $30,000 or less, but only if it is satisfied that there are special circumstances warranting such an award.
3. In this appeal there was no "amount claimed". Rather, the Builder sought orders absolving it from the requirement to rectify one or more stains.
4. The next question is whether the "amount in dispute" on the appeal is $30,000 or greater. Allen decided, at [57] that: "Adapting these principles to the circumstances of the present appeals and having regard to the specific wording of r 38, it appears to us that in applying r 38(2)(b): (1) The determinative factor is the amount in dispute in each appeal, not the amount in dispute in the proceedings at first instance; (2) The phrase "in dispute" is to be construed as meaning truly in dispute or at issue or, inversely, not unrealistically in dispute; (3) Whether "the amount … in dispute" in each appeal is more than $30,000 depends on whether there is a realistic prospect that in each appeal the wealth of the appealing party would be changed by more than $30,000 or, put another way, whether the right claimed by the appealing party, but denied by the decision at first instance, prejudices that party to an amount in excess of $30,000; (4) The fact that the value of the property the subject of any appeal exceeds $30,000 does not, of itself, mean that "the amount … in dispute" in that appeal is greater than $30,000."
5. The central question on this appeal, in relation to costs, is therefore whether there was a realistic prospect that the wealth of the Builder would be changed by more than $30,000 as a result of the appeal.
6. On the appeal the Builder sought to avoid liability to rectify numerous stains in certain timber joinery (because there was evidence of only one such stain and no evidence of numerous stains) and sought to avoid liability for all staining (whether numerous or singular) for a variety of other reasons. The Builder succeeded on the former but failed on the latter.
7. At first instance the estimated total rectification cost for Item 24, the sole Item the subject of the appeal, was said to be $10,000. It follows, per Allen at [57], that the amount in dispute was less than $30,000. It follows from that conclusion that to receive an order for costs a party would need to establish special circumstances.
8. The Builder sought to establish special circumstances by its submissions that we have summarised at [96]-[99] above. We have rejected those submissions. Accordingly, the Builder has failed to establish the relevant special circumstances which would justify an award of costs in its favour.
9. In those circumstances we order that each party are to pay his, her and its own costs of the Principal Appeal.

The Builder's Submissions

1. The Builder submitted that it should be awarded the costs of the Costs Appeal and that that those costs should be assessed on an indemnity basis.
2. The Builder submitted that the Owners caused the Costs Appeal because, after the Builder obtained the stay of Orders 6, 7, 8 and 9 made by the Tribunal on 22 April 2020 (set out at [27] above), the Owners did not advise the Tribunal Member of the fact of that stay.
3. What precise obligation the Owners had to inform the Tribunal Member of the fact of the stay was not identified, nor was anything said about the obvious fact that the Builder, who had obtained the stay, did not inform the Tribunal Member either. The Builder did not identify why the Owners had any greater obligation to inform the Tribunal Member of the stay (assuming any obligation on any party existed).
4. Given the Owners had complied with Order 6 before the stay was granted, it was only the Builder who was prevented from compliance with Orders 7 and 9. Therefore one would have thought it was the Builder who, at least as a matter of courtesy and out of an abundance of caution, should have informed the Member that it was prevented from complying with Orders 7 and 9 by reason of the stay.
5. Further still, why the Builder did not obtain a stay of the proceedings (which would have prevented the Tribunal deciding the costs issue) rather than simply preventing the filing of submissions and evidence is not known.
6. In any event, we reject the Builder's submission that the Owners acted in some improper way by not advising the Tribunal Member of the fact of that stay.

The Owners' Submissions

1. The Owners submitted that they should be awarded the costs of the Costs Appeal and that that those costs should be assessed on an indemnity basis from the date of their Calderbank offer dated 26 November 2020 (the terms of which are set out at [47] above).
2. In that offer the Owners offered to agree that the Costs Decision be set aside, the issue of costs at first instance be referred back to the Member, and that each party bear their own costs of the Costs Appeal.
3. The Owners seek indemnity costs from the date of that offer.

Decision

1. Neither party addressed the question posed by rr 38 and 38A, and neither party led any evidence as to the likely quantum of costs.
2. Given the limited nature of the Costs Appeal we think it unlikely that costs of any party would be $30,000 or greater. Therefore, per Allen, either party would need to show special circumstances in order to receive an order for costs.
3. We have rejected the Builder's submissions as made and reject them as establishing any special circumstances under s 60 of the NCAT Act.
4. In substance, the Owners submit that their offer is a special circumstance warranting an award of costs because the result of the appeal (that the Costs Decision be set aside and the issues be decided again by the Tribunal) was, in substance, what was eventually achieved, and that there was a compromise on costs in that the offer said that each party would pay their own costs.
5. An appropriate Calderbank offer may amount to a special circumstance warranting an award of costs - Brunsprop Pty Ltd v Joanne Hay & Wes Davies [2015] NSWCATAP 152 at [21].
6. The offer provided for the result the Builder was after (the setting aside of the Costs Decision), the only difference being the Builder preferred a different decision maker to the Tribunal at first instance. On that issue, the only reason we decided to determine the costs of the proceedings at first instance (rather than referring that question back to the Tribunal as originally constituted) was to lessen the costs to the parties.
7. Whether it was unreasonable to accept the offer is to be judged by reference to the terms of the offer and all the relevant surrounding circumstances - King Network Group Pty Ltd v Club of the Clubs Pty Ltd (No 2) [2009] NSWCA 204 at [11].
8. In our opinion it was unreasonable of the Builder not to accept the offer. The offer offered the Builder a result which overcame the effect of the unfairness visited upon it and returned the parties to the position they would have been in had the Tribunal not made its Costs Decision. In our opinion the Owners' offer is a special circumstance warranting an award of costs.
9. The offer was made at an early stage of the appeal proceedings and at a time when the costs incurred would have been substantially less than would ultimately be incurred.
10. However, we do not think the offer justifies an order for indemnity costs. The offer only provided for the referral back of the costs question of the proceedings at first instance and thus did not account for the fact that we might decide the costs question and did not therefore include any apparent element of compromise on that issue.
11. In the exercise of our discretion we consider it appropriate that each party pay their own costs of the Costs Appeal up to the date of the offer (being 26 November 2020) and the Builder to pay the Owners costs of the Costs Appeal from that date onward.

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            I hereby certify that this is a true and accurate record of the reasons for decision of the New South Wales Civil and Administrative Tribunal.

Registrar 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: 26 February 2021