Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Rehman v F&F Smart Homes Pty Ltd (costs) [2023] NSWCATCD 56 Hearing dates: On the papers Date of orders: 14 April 2023 Decision date: 14 April 2023 Jurisdiction: Consumer and Commercial Division Before: G Ellis SC, Senior Member Decision: 1. The Tribunal dispenses with a hearing on the question of costs. 2. Each party is to bear their own costs of the proceedings. Catchwords: COSTS – Unreasonable refusal of settlement offer – failure to mitigate loss – costs not proportionate Legislation Cited: Civil and Administrative Tribunal Act 2013 (NSW) – ss 36, 50, 60 Civil and Administrative Tribunal Rules 2014 (NSW) – r 38 Home Building Act 1989 (NSW) – s 18BA Uniform Civil Procedure Rules 2005 (NSW) – r 42.7 Cases Cited: Bostik Australia v Liddiard (No 2) [2009] NSWCA 304 Calderbank v Calderbank [1975] 3 All ER 333 eMove Pty Ltd v Dickinson [2015] NSWCATAP 94 Hasell v Bagot, Shakes & Lewis Ltd [1911] HCA 62 Jones v Bradley (No 2) [2003] NSWCA 258 Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 Mahon v Air New Zealand Ltd [1984] AC 808 Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 Nu Line Construction Group Pty Ltd v Fowler [2012] NSWSC 816 Old v McInnes and Hogkinson [2011] NSWCA 410 Oshlack v Richmond River Council [1998] HCA 11 SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 Roluke Pty Ltd v Lanaro Consultants Pty Ltd [2007] NSWSC 671 Smith v Giro Construction Pty Ltd [2015] NSWCATAP 214 Texts Cited: None cited Category: Costs Parties: Applicant – Abdul Nateen Rehman Respondent – F&F Smart Homes Pty Ltd Representation: Counsel: Respondent – W Calokerinos Solicitors: Applicant – Greenwood Lawyers Respondent – Arch Law (Australia) Pty Ltd File Number(s): HB 22/00516 Publication restriction: Nil Reasons for decision Outline 1. Following a hearing on 21 December 2022 in relation to the construction of duplex residential dwellings in Schofields, on 16 January 2023 the Tribunal made a work order in favour of the owner plus a money order for $25,260.64. The focus of the evidence and hearing was the claim for defective work which alleged 94 defects in 30 locations in one unit dwelling and 106 defects in 36 locations in the other dwelling. The joint report revealed numerous areas of disagreement between the experts. It was only the sensible approach of counsel for the parties that enabled the hearing to be concluded in a single day. 2. Having considered the reasons published on 16 January 2023 and both the evidence and submissions in relation to costs, the Tribunal determined that: (1) the owner had unreasonably refused to accept an offer of settlement, (2) the owner had failed to mitigate his loss, (3) there had been breaches by the owner's solicitor of the duty imposed on s 36(3) of the Civil and Administrative Tribunal Act 2013 (the CATA), and (4) the owner's incurred costs of $102,421.56 were disproportionate to the subject matter of the proceedings. Relevant law 1. As was indicated in those reasons, the question of costs in this instance is governed by rule 38 of the Civil and Administrative Tribunal Rules 2014 (NSW) (the Rules), not by s 60 of the CATA, with the result that costs follow the event (ie outcome) unless there is disentitling conduct on the party of the successful party. 2. What is commonly called a Calderbank letter, being a letter that follows the practice established in the UK by the decision in Calderbank v Calderbank [1975] 3 All ER 333, revealed a strategy employed in Family Court proceedings, as an alternative to paying money into court, of conveying an offer of settlement in writing to the other party. 3. If a better outcome is not achieved, reliance is then placed on the offer in the Calderbank letter with the aim of, at least, depriving the successful party of costs and, commonly, to advance a claim that an order for costs be made against the successful party, even on an indemnity basis. However, it is important to note that a Calderbank letter does not automatically result in an indemnity costs order: Jones v Bradley (No 2) [2003] NSWCA 258, Old v McInnes and Hogkinson [2011] NSWCA 410. 4. The principles that need to be considered, as established by cases such as SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323, Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 and Nu Line Construction Group Pty Ltd v Fowler [2012] NSWSC 816, are: 1. There must have been a real and genuine element of compromise. 2. The refusal must have been unreasonable. 3. The reasonableness in rejecting an offer must be considered at the time the offer is made and not with the benefit of hindsight. 1. Matters relevant to whether rejection of the offer was reasonable include: 1. the stage of the proceedings when the offer was made, 2. the time that was allowed for the offer to be considered, 3. the extent of the compromise offered, 4. the recipient's prospects of success at that time, 5. the clarity of expression of the offer, and 6. whether the offer foreshadowed a request for indemnity costs. 1. The considerations set out in the previous two paragraphs are relevant to the assessment of any settlement offer, not just to a Calderbank letter. 2. It is also noted that a party claiming damages is under an obligation to mitigate their loss and, where there has been a failure to mitigate loss, the damages are reduced to what they would have been had the innocent party acted reasonably: Hasell v Bagot, Shakes & Lewis Ltd [1911] HCA 62, Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 at [187]. 3. In the CATA, s 36 provides as follows: 36 Guiding principle to be applied to practice and procedure (1) The guiding principle for this Act and the procedural rules, in their application to proceedings in the Tribunal, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings. (2) The Tribunal must seek to give effect to the guiding principle when it: (a) exercises any power given to it by this Act or the procedural rules, or (b) interprets any provision of this Act or the procedural rules. (3) Each of the following persons is under a duty to co-operate with the Tribunal to give effect to the guiding principle and, for that purpose, to participate in the processes of the Tribunal and to comply with directions and orders of the Tribunal: (a) a party to proceedings in the Tribunal, (b) an Australian legal practitioner or other person who is representing a party in proceedings in the Tribunal. (4) In addition, the practice and procedure of the Tribunal should be implemented so as to facilitate the resolution of the issues between the parties in such a way that the cost to the parties and the Tribunal is proportionate to the importance and complexity of the subject-matter of the proceedings. (5) However, nothing in this section requires or permits the Tribunal to exercise any functions that are conferred or imposed on it under enabling legislation in a manner that is inconsistent with the objects or principles for which that legislation provides in relation to the exercise of those functions. 1. Bostik Australia v Liddiard (No 2) [2009] NSWCA 304 (Bostik) at [38] and Smith v Giro Construction Pty Ltd [2015] NSWCATAP 214 (Smith) establish that costs should not be determined by reference to issues instead of outcome unless the issue/s on which the successful party was/were unsuccessful were dominant or severable. Further, cases such as Roluke Pty Ltd v Lanaro Consultants Pty Ltd [2007] NSWSC 671 (Roluke) at [29] warn against tallying of wins and losses or taking of a 'scorecard' approach to the question of costs. 2. It is noted that the discretion as to costs must be exercised judicially (eMove Pty Ltd v Dickinson [2015] NSWCATAP 94 at [48]) and not either arbitrarily or capriciously (Oshlack v Richmond River Council [1998] HCA 11 at [22]). Documents 1. With the owner's submissions came a copy of an 18 July 2022 letter from the solicitor for the builder which had an attached schedule which have been admitted as Exhibit B. The 4 April 2023 affidavit of the builder's solicitor, and the accompanying documents, have been admitted as Exhibit C. The initial submissions on costs for the owner and builder have been marked for identification, MFI 7 and MFI 8 respectively. The supplementary submissions have been marked as MFI 8 and MFI 9 respectively. Owner's evidence 1. Just under three weeks after the intended 28 June 2022 hearing was adjourned, on 18 July 2022, a letter was sent, offering to carry out rectification work in accordance with an attached schedule, complete that work within eight weeks, construct the pool for an additional cost of $20,000, and pay $25,000 towards the owners' costs, subject to completion of a "suitable Deed of Release". The offer was left open until 5 August 2022, a period of more than two weeks. Builder's evidence 1. In his affidavit, the builder's solicitor referred to the following events: 15 Mar 22 Directions hearing, orders made for filing and serving documents 29 Mar 22 Due date for service of the owner's evidence 21 Apr 22 A second report from the owner's expert was served 10 May 22 Email sought confirmation all evidence served, sought new timetable 12 May 22 Second email from builder's solicitor, due to no reply 19 May 22 Third email from builder's solicitor, due to no reply 20 May 22 Fourth email from builder's solicitor, raising the same matters 20 May 22 Reply from owner's solicitor, proposing alternative timetable 17 Jun 22 Revised directions made with a view to preserving the hearing date 22 Jun 22 Builder served evidence in accordance with those directions 28 Jun 22 Owner's solicitor served 121 pages of evidence, by email, at 1.45am 28 Jun 22 The intended hearing was adjourned but no costs order was made 1. The affidavit went on to detail events relating to the work order, not relevant to the question of costs, and to the delay in the provisions of the owner's written submissions on costs. Owner's submissions 1. The "fundamental position" of the owner was that he was required to commence these proceedings and continue them to obtain the remedy sought, with the contended result that costs should follow the event. It was suggested there was no disentitling conduct on the part of the owner. 2. Reference was made to the 18 July 2022 offer to carry out work, as set out in a schedule and pay $25,000 for costs (Exhibit B) which was said to be unacceptable because it only covered some of the work, did not address the failure to construct the swimming pool, and did not provide financial compensation, presumably a reference to the claim for damages for delay. It was noted that offer was revised in the builder's outline submissions dated 20 December 2022. In short, it was contended that the owner obtained a better outcome than was offered by the builder. 3. It was also submitted that the owner "conducted the proceedings efficiently and largely in accordance with the Tribunal's directions" and that costs should not be determined by reference to the outcome of various issues. 4. After indicating that the owner's costs "are in the vicinity of $101,421.56" it was submitted that the owner should be awarded costs, on the ordinary basis, as agreed or assessed. Builder's submissions 1. The builder's case on costs was that each party should pay their own costs or, alternatively, that the builder should only be required to pay the owner's costs up to 28 June 2022, being a date when the matter was due to be heard but had to be adjourned due to the late service of evidence by the builder's solicitor. 2. On behalf of the builder, it was contended that the proceedings were not run in an efficient manner and reference was made to the aborted hearing on 28 June 2022 and to the time taken to provide submissions on costs. It was said that costs incurred after 28 June 2022 were the result of the owner's solicitor not being prepared and that without prejudice discussions on that day did not narrow the issues but only served to increase costs. Reliance was placed on the affidavit of the builder's solicitor. 3. In short, it was contended that an order for costs was not compensating the owner but was rewarding his solicitor for conduct which only serve to increase the costs of these proceedings. 4. The submissions also included reference to the outcome on individual issues which the Tribunal does not consider for the reasons set out below. Submissions in reply 1. The orders made by the Tribunal on 16 January 2023 included for the owner to provide written submissions as to costs by 23 January 2023. As a result of the owner's request for an extension of time, due to his counsel being on leave, on 31 January 2023 the time for those submissions to be provided was extended, by more than two weeks, to 3 February 2023. 2. That second deadline passed without any further communication from the owner's solicitor to seek either provide written submissions, explain the delay, or seek a further extension of time, despite the duty imposed on him by s 36(3) of the CATA. 3. When no submissions had been received by 15 March 2023, one day short of two months after publication of the reasons and almost six weeks after the extended deadline, the Tribunal wrote to indicate that, in the absence of any written communication by 17 March 2023, the Tribunal would proceed on the basis that the application had been finalised. 4. On 17 March 2023, a letter from the owner's solicitor suggested he had been attending to other matters and that he wished to have his submissions as to costs settled by counsel. On 20 March 2023, the Tribunal extended the time for the owner's submissions on costs to 12 noon on 21 March 2023 and gave the builder the same two-week period it had initially been given. As a result, the builder's submissions on costs were due by 4 April 2023. That second extension of time was granted as there did not appear to be any prejudice to the builder and since it is desirable that the owner should not suffer due to the tardiness of his solicitor. 5. Given the delay in obtaining submissions on costs from the owner, any submissions in reply were required within 48 hours after receipt of the builder's submissions. No such submissions were received. Further submissions 1. Heading the warning provided by Mahon v Air New Zealand Ltd [1984] AC 808, not to determine costs on a basis which the parties did not have an opportunity to address, on 11 April 2023 the Tribunal provided an opportunity for both parties to lodge further submissions on (1) any implications for costs of the letter dated 1 November 2021 from the builder's solicitor, a copy of which is at pages 846-849 of the joint tender bundle, which became Exhibit A, and (2) the fact that the orders made on 28 June 2022 included an order reserving costs. 2. Submissions for the owner contended that a substantially better outcome was achieved compared to what was offered in the 1 November 2021 letter, and that it was not unreasonable for the owner not to accept the offer for the defects claim to be resolved by a building inspector jointly appointed by the parties. 3. As to the order made on 28 June 2022 reserving the question of costs, it was contended, by reference to r 42.7 of the Uniform Civil Procedure Rules 2005 (NSW) that a general costs order includes any reserved costs. It was observed that the builder did not serve any evidence responding to the owner's 28 June 2022 affidavit but that overlooks the question of costs thrown away. 4. The builder contended that the effect of the 1 November 2021 letter was that, if the offer in relation to defective work had been accepted, then the amount ins dispute would have been less than $30,000 with the result that s 60 of the CATA and not r 38 of the Rules would have applied. 5. No specific submissions were made for the builder in relation to the reserved costs of the 28 June 2022 adjournment, only contentions that orders should be made to distinguish between costs incurred before and after that date. Consideration 1. Although two substantive orders were made on 16 January 2023, namely a work order and a money order for $26,250.64, there were three heads of claim: 1. A claim there was defective work which resulted in a work order plus an award of $1,412.25 for the cost saving arising from the use of lower-rated insulation batts. 2. A claim for incomplete work which related to the cost of the swimming pool exceeding $60,000, which resulted in an award of $21,480.96. 3. A claim for damages for delay which was assessed as warranting an amount of $2,694.29 for the period from 10 October to 25 November in 2021 in respect of unit 2, plus $2,663.14 for the period from 10 October to 5 November in 2021, a total of $5,357.43, less an amount of $2.000 that had already been paid by the builder, giving $3,357.43 for delay. 1. The Tribunal does not consider there was any dominant or severable issue that warrants dealing with costs on an overall basis and, following what was said in Roluke, does not adopt a scorecard approach to items in the defects claim. 2. What is clearly significant in relation to costs is that on 1 November 2021 the builder's solicitor sent a letter which contained an offer to remedy any defects found by a building inspector agreed by the parties. 3. It is instructive to consider that offer, which preceded the application being lodged early in 2022, by reference to the Tribunal's guiding principle, established by s 36(1) of the CATA, which sets the objective of the "just, quick and cheap resolution of the real issues in the proceedings". 4. A decision by a building inspector agreed by the parties would have provided a just outcome because that person would have been an expert, independent of the parties. The outcome would have been quick because such an inspector would have been able to produce a report by early 2022, a year ahead of the Tribunal's decision. Further, that outcome would have been cheap because it would have avoided the need to incur the costs of these proceedings and the cost of obtaining that outcome would have been vastly cheaper than what has occurred, bearing in mind that the owner's solicitor has run up costs exceeding $100,000. 5. The Tribunal considers it was unreasonable of the owner not to accept that offer of settlement of the defects claim, irrespective of whether the owner had already obtained a report from an expert. In reaching that view, the Tribunal has taken into consideration that the offer contained a real and genuine element of compromise. Assessing that offer at the time it was made, and not with the benefit of hindsight, it is noted that (1) the offer was made before the proceedings were commenced, (2) did not lack clarity, (3) was an offer which the owner could have accepted instead of commencing proceedings. 6. The reality is that on 13 January 2023 the owner obtained a work order for the rectification of defects determined by the Tribunal, based on what was said by two experts, but the owner could have achieved an equivalent outcome in November 2021. 7. Further, that 1 November 2021 offer represented an opportunity for the builder to mitigate his loss, which is required by both the common law, and by s 18BA(1)(a) of the Home Building Act 1989 which states that "a party to the contract who suffers loss arising from the breach has a duty to mitigate their loss". 8. Had the owner accepted the builder 1 November 2021 offer in relation to his defects claim, all that would have remained would have been (1) the additional cost of the swimming pool above $60,000, which would have no doubt been less at that time, (2) perhaps a small claim in relation to the insulation batts, plus (3) two claims for delay which only entitled the owner to a small amount: $3,357.43 because the builder had already paid $2,000 towards that claim. 9. It can be said that the owner would have still had to commence proceedings in relation to those matters, which gave rise to the money order. However, the costs of such proceedings would only have been a fraction of the costs which the owner has, in fact, incurred. 10. Further, the Tribunal is satisfied that the builder is entitled to an order that the owner pay the costs thrown away by reason of the adjournment of the hearing on on 28 June 2022 since the service of evidence at 1.45am on the day of an intended hearing cannot be overlooked. The orders made on that occasion included reserving the question of costs. There would plainly have been costs incurred by the builder in preparing for that hearing. Such costs of preparation would have been incurred again in preparing for the hearing on 21 December 2022. As a result, there were undoubtedly costs thrown away. 11. Plainly, if no separate costs order was made in relation to the aborted 28 June 2022 hearing, the costs would include ay reserved costs. However, it does not follow that the costs of the adjournment caused by the owner should be overlooked and the consequences for the builder be ignored. Had the question of costs been considered on 28 June 2022, the owner would not have been able to resist an order that the owner pay the builder's costs thrown away by reason of the adjournment of the hearing on that day. 12. Neither of those two aspects, a money order claim by the owner and the builder's costs thrown away due to the adjournment, can be quantified with precision but the Tribunal considers the appropriate course is to treat those two matters as cancelling each other out, rather than making two costs orders which, given the history of this litigation, would be likely to require assessment. 13. As a result, the Tribunal considers each party should bear their own costs of the proceedings, the primary reason being that an offer of settlement was unreasonably rejected. 14. Two further matters need to be recorded. First, that the submission made on behalf of the owner conducted the proceedings efficiently and largely in accordance with the Tribunal's directions" must be rejected. It is sufficient to refer to three matters: (1) the failure to respond to emails from the builder's solicitor in May 2022, (2) the service of evidence at 1.45am on the day of the hearing, and (3) the delay in relation to the provision of submissions as to costs. 15. As to the first of those three matters, the presence of litigation does not warrant an absence of etiquette. The second and third matters involve breaches of the duty imposed by s 36(3) of the CATA. 16. Finally, it must be noted that s 36(4) of the CATA sets the goal of keeping the costs proportionate to subject matter of the proceedings. There is little the Tribunal can do when the parties conduct themselves in such a way that significant costs are incurred in what is intended to be a low-cost jurisdiction. 17. The fact that the quantification of the costs of rectification by the experts retained by the parties suggests that one or both of h those experts strayed into the realm of advocacy, based on there being such large differences in relation to so many items. It must be borne in mind that the focus of the evidence and hearing was the claim for defective work which alleged 94 defects in 30 locations in one unit dwelling and 106 defects in 36 locations in the other dwelling. So great and so numerous were the differences in opinion on quantum that counsel agreed not to explore those differences in any detail. Those differences would not have arisen if the offer contained in the 1 November 2021 letter from the builder's solicitor had been accepted by the owner. 18. In short, these proceedings appear to have crossed the line which separates dispute resolution from litigation warfare. 19. It is undeniable that the goal of proportionality was not achieved. To award costs to either party in such circumstances would only condone such conduct. The Tribunal has limited ways to keep proceedings cheap, but it can send a message that it does not necessarily follow that parties who run up substantial costs will not necessarily be entitled to recover those costs. Incurring costs should not be regarded as synonymous with recovering costs. 20. In small claims, where the amount claimed or in dispute is less than $30,000, the Tribunal does not award costs unless there are special circumstances warranting an award of costs. Likewise, in claims where the amount exceeds $30,000 there may be special circumstances which warrant not awarding costs. The Tribunal is satisfied that this is such a case. Orders 1. The owner's submissions consented to costs being determined on the papers, the builder's submissions did not express a contrary view, and the Tribunal is satisfied there is no utility in conducting such a hearing. As a result, an order will be made under s 50(2) of the CATA. 2. Accordingly, for the reasons set out above, the following orders are made: 1. The Tribunal dispenses with a hearing on the question of costs. 2. Each party is to bear their own costs of the proceedings. ********** 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: 17 July 2023