Supreme Court New South Wales Medium Neutral Citation: Wang v Yamamoto [2015] NSWSC 942 Hearing dates: 24 June 2015 Date of orders: 17 July 2015 Decision date: 17 July 2015 Jurisdiction: Common Law Before: Harrison AsJ Decision: The Court orders that: (1) Leave to appeal in relation to the decision dated 8 October 2014 is refused. (2) The appeals are dismissed. (3)The further amended summons filed 25 February 2015 is dismissed. (4) The decisions of his Honour Magistrate Bradd dated 4 September 2014 and 8 October 2014 are affirmed. (5) The plaintiffs are to pay the defendant's costs on an ordinary basis as agreed or assessed. Catchwords: APPEAL FROM LOCAL COURT – Local Court Act 2007 (NSW) – assessment by Magistrate of award of abatement of rent – whether Magistrate gave adequate reasons – whether defendant in the Local Court denied procedural fairness – whether Magistrate erred in awarding indemnity costs against defendant in the Local Court – whether Magistrate erroneously took into account non complying offer of compromise and lack of prospects of success when awarding indemnity costs Legislation Cited: Civil Procedure Act 2005 (NSW) Local Court Act 2007 (NSW) Cases Cited: Baltic Shipping Company v Dillon [1993] HCA 4; (1993) 176 CLR 344 Beale v Government Insurance Office of NSW (1997) 48 NSWLR 340 Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658 Hazeldene's Chicken Farm Pty Ltd v Victorian Work Cover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298 House v The King [1936] HCA 40; (1936) 55 CLR 499 Keith v Gal [2013] NSWCA 339 Pollard v RRR Corporation Pty Limited [2009] NSWCA 110 Potts v Miller [1940] 64 CLR 282 Soulemezis v Dudley (Holdings) Pty Limited (1987) NSWLR 247 Stoker v Adecco Gemvale Constructions Pty Ltd [2004] NSWCA 449 Texts Cited: Halsbury's Laws of Australia Category: Principal judgment Parties: John Wang (First Plaintiff) Mary Li (Second Plaintiff) Tomoko Yamamoto (Defendant) Representation: Counsel: R Sheldon SC with J Lee (First and Second Plaintiffs) M Young SC (Defendant) Solicitors: Ren Zhou Lawyers (First and Second Plaintiffs) Oliveri Attorneys (Defendant) File Number(s): 2014/288406 Publication restriction: Nil Decision under appeal Court or tribunal: Local Court of NSW Jurisdiction: General Division Date of Decision: 04 September 2014, 08 October 2014 Before: Bradd LCM File Number(s): 2013/188688 JUDGMENT 1. HER HONOUR: The plaintiff seeks to appeal the whole of the decisions made by his Honour Magistrate Bradd in the NSW Local Court on 4 September 2014 and 8 October 2014. 2. By further amended summons filed 25 February 2015, the first and second plaintiffs seek an order firstly, that if necessary, leave be granted to appeal from the orders for payment of $30,088.76 in damages, interests and costs; secondly, that the appeal be allowed; thirdly, that the orders made by the Local Court on 4 September 2014 be set aside, and in lieu thereof, that judgment be entered for the first and second plaintiffs in the Local Court proceedings and similarly that this Court order that the plaintiff in those proceedings pay the first and second defendant in those proceedings costs. Although the plaintiffs in the further amended summons have not sought to set aside the costs order made on 8 October 2014, as both parties conducted the appeal on the basis that the costs decision was under challenge, I will deal with it. 3. The first plaintiff in these proceedings is John Wang ("Mr Wang") who was the second defendant in the Local Court proceedings. The second plaintiff is Mary Li ("Ms Li") who was the first defendant in the Local Court proceedings. They were represented by Mr R Sheldon SC with Mr J Lee. The defendant in these proceedings is Tomoko Yamamoto ("Ms Yamamoto") who was the plaintiff in the Local Court proceedings. She was represented by Mr M Young SC. 4. Mr Wang and Ms Li relied upon the affidavit of their solicitor Jonathan Hai Song Lu filed 28 January 2015. Ms Yamamoto relied on the affidavit of her solicitor Dominic Oliveri filed 2 April 2015. For convenience and without meaning any disrespect, I shall refer to the parties by name and confine the description of the plaintiffs to "Mr Wang". 5. On 9 September 2014, the Magistrate ordered Mr Wang to pay $30,088.76 to Ms Yamamoto plus interest and awarded costs payable by Mr Wang on an ordinary basis until 3 February 2014, and thereafter on an indemnity basis. The appeal 1. Section 39 of the Local Court Act 2007 (NSW) provides that a party who is dissatisfied with a judgment or order of the Local Court may appeal to the Supreme Court, but only on a question of law. 2. Section 40(1) of the Local Court Act provides that a party who is dissatisfied with a judgment or order of the Local Court may appeal to the Supreme Court on a ground that involves a question of mixed law and fact, but only by leave of the Supreme Court. Section 40(2) provides that a party who is dissatisfied with an order as to costs of the Local Court may appeal to the Supreme Court, but only by leave of the Supreme Court. So far as Mr Wang's appeal against the costs order is concerned, he needs leave. 3. Section 41(1) of the Local Court Act provides that this Court may determine an appeal either (a) by varying the terms of the judgment or order, or (b) by setting aside the judgment or order, or (c) by setting aside the judgment or order and remitting the matter to the Local Court for determination in accordance with the Supreme Court's directions, or (d) by dismissing the appeal. Factual background 1. Mr Wang is the registered owner of residential premises located at xxxx in North Sydney ("the apartment"). 2. On 23 August 2011, Ms Yamamoto entered into a lease agreement with Mr Wang for use of the apartment for a period of 12 months. Ms Yamamoto lived at the apartment with her partner, Koji Aoki ("Mr Aoki") and their young daughter. 3. The apartment had two bathrooms, one ensuite in the master bedroom and one bathroom in the main area. During the period of Ms Yamamoto's tenancy there were issues with both bathrooms which required work to be carried out. The periods during which work was carried out were for the ensuite, 15 February 2012 to 28 May 2012 ("the first period"), and for the main bathroom, 2 July 2012 to 9 September 2012 ("the second period"). The pleading framework in the Local Court 1. By statement of claim filed in the Local Court on 25 June 2013, Ms Yamamoto sought abatement of a portion of rental moneys she had paid to Mr Wang in accordance with the tenancy agreement. The quantum she sought was $31,585, about half of the rental moneys payable for the entirety of her occupancy of the apartment. Ms Yamamoto also contended that Mr Wang was liable to her for those amounts due to a fraudulent representation made regarding the condition of the ensuite. By amended defence filed 25 September 2013, Mr Wang admitted that he should abate a portion of the rent payable during the first and second periods. 2. That some abatement of rent was owed to Ms Yamamoto was not in issue at the hearing. There was an issue in dispute as to whether Mr Wang was liable to pay damages for the fraudulent representation made by their agent, Ms Gunarajan but that part of the decision does not form part of this appeal. The issue in dispute on appeal is the amount of rental abatement. 3. In the statement of claim, Ms Yamamoto first sought damages for leaks in the ensuite bathroom. The claim for leaks was pleaded at [10] and [11] as follows: "10 As a result of the leaks in the bathroom, the plaintiff's enjoyment of the unit was considerably diminished. Particulars The plaintiff was not able to entertain clients and guests and was required to carry out her entertainment in restaurants causing her inconvenience and expense. 11 The occupant Koji Aoki was unable to entertain clients in the unit and was required to hold meetings in restaurants at great inconvenience and expense." 1. I shall refer to this claim as "the earlier period". 2. At paragraphs [12]-[14] of the statement of claim, Ms Yamamoto pleaded that she was entitled to abatement of rent for the first and second periods due to the apartment being largely uninhabitable. Those paragraphs plead: "12 Further, the unit was largely uninhabitable for the periods from 15 February 2012 until 28 May 2012 inclusive and from 2 July 2012 until 9 September 2012 as a result of the repair work that was being carried out by the defendants' tradesmen. Particulars: During the period between 15 February 2012 and 28 May 2012 inclusive and the period between 2 July 2012 and 9 September 2012 the trades caused so much noise and dust during the working hours that the plaintiff and the occupant were not able to stay in the unit or carry on any business from the unit. 13 Further, it was a term and condition of the lease that the rent would abate if the unit was destroyed, or became wholly or partly uninhabitable otherwise than as a result of a breach of the agreement by the plaintiff. 14 The unit was partly uninhabitable for the periods between 15 February 2012 and 28 May 2012 inclusive and 2 July 2012 and 9 September 2012 otherwise than as a result of a breach of the agreement by the plaintiff." The amended defence 1. At paragraph [8] of the amended defence, liability for the earlier period was denied. 2. Paragraph [8] of the amended defence pleads: "8. In reply to paragraph 10 & 11; The Defendants deny them; Particulars: a. Despite a detailed request (dated 28/07/2013) requesting details of these allegations no further proper particulars have been furnished. b. Mr Koji Aoki is unknown to the Defendants or the Agent: and any liability to him is denied. He is not named in the lease. c. The Unit was rented for residential purposes only. d. It is denied that even whilst the repairs to each of the bathrooms took place, that the rest of the unit was NOT fully liveable and used by the Plaintiff. There was always one full working bathroom available. e. The Defendants have always offered a level of rental reduction (abatement) commensurate with the level of actual loss of Quite [sic] Enjoyment. f. No claim for loss and damage resulting from reduction of alleged 'commercial activities' had ever been notified or claimed prior to commencement of Proceedings. Nor has the legal nature of this claim or the amounts claimed ever been particularised." 1. At paragraph [9], Mr Wang denied that the apartment was largely uninhabitable during the first and second period and pleads "9. In reply to paragraphs 12: The Defendants deny that the unit was as 'wholly uninhabitable' as alleged: Particulars a. The Plaintiff continued to live in the unit throughout the period repair works were undertaken, and which were undertaken with her full consent, cooperation and agreement. b. In that respect neither party breached their Lease obligations; the Landlord promptly repaired and the Tenant gave agreed access for same. c. The ensuite was under repair from 15-02-2012 to 28-05-2012. The common bathroom for 02-07-2012 to 09-09-2012. There was always one full bathroom available. That's 23 weeks in total. For the remainder of the Lease period there was no problem or claim. d. The Defendants made every possible effort to minimise the work time and inconvenience, they employed professional cleaners whenever required. Any dust was immediately cleaned or removed by the tradesmen or cleaners. e. The unit was usually unoccupied during the day and hence no one was affected by occasional work noise." The hearing in the Local Court 1. The proceedings in the Local Court were heard by his Honour Magistrate Bradd over a two day period, namely 9 April 2014 and 23 May 2014. Ms Yamamoto was represented by Mr Oliveri, solicitor and Mr Wang was represented by Mr Boyle, solicitor. In the Local Court, Mr Wang relied upon his affidavit dated 5 March 2014, the affidavit of Ms Gunarajan the managing agent dated 3 March 2014 (Ex 8) and the expert report of Mr Field dated 9 March 2014, which was of little evidentiary value. Ms Li relied on her affidavit as amended (Ex 6). Ms Yamamoto relied upon her affidavit filed 28 January 2014 (Ex 2) and the affidavit of Mr Aoki dated 28 January 2014 (Ex 3.) The decision of the Magistrate 1. On 4 September 2014, the Magistrate handed down his written reasons for decision. The section of those reasons relevant to this appeal is the discussion of damages that appears at paragraphs [46] to [60]. I shall reproduce some of those paragraphs, not sequentially, but rather in chronological order, starting with the earlier period, followed by the first and the second periods where rent abatement is claimed. 2. His Honour made findings in relation to the earlier, first and second periods. At [48] his Honour recorded: "[48] The disadvantage suffered by Ms Yamamoto is the inconvenience of living in the premises when there was water leaking from the ensuite and for the time it was being repaired." 1. So far as the earlier period is concerned, his Honour made a finding at [58] that: [58] The rental period prior to the ensuite being repaired is 313.25 days. The rent for the rental period is $56.346.41 The wet carpet at the entrance to the ensuite affected two of the three occupants. Two-thirds of the rent is $37,564.27. I allow an 8% reduction for the inconvenience of the wet carpet at the entrance to the ensuite. The amount is $3,005.14." The first period 1. The Magistrate summarised the evidence in relation to the claim for damages for the works on the main bathroom during the first period at [59] and [60]: "[59] The main bathroom was repaired from 15/02/2012 until and including 28/05/2012, which is 103.25 days. The rental for the period is $18,572.29. During this period the third occupant could only use the ensuite bathroom. I allow a 4% reduction in rent for the inconvenience of the third occupant having to use the ensuite bathroom with a wet carpet. The amount is $742.89. [60] The evidence of Ms Gunarajan is that a leak was found seven months later, which is March 2012. Her estimate must be wrong because works were started in February 2012. Since the work was done first, it is likely that it is the work referred to in the email dated 13/01/2012 from the building manager to Ms Gunarajan, wherein it states that 'the water leak will have to be fixed ASAP'. The time taken for the work indicates that the work undertaken was major. Based on the evidence of Ms Yamamoto regarding the inconvenience that occurred when the ensuite was repaired, presuming that the inconvenience was similar to that experienced when the main bathroom was repaired, and taking into account the email from Mr Aoki dated 07/05/2012, wherein he expresses his annoyance with the work being carried for a period of three months, particularly the cutting of tiles on the balcony and the use of the living area to transport the tiles to the bathroom, which work caused all their clothes to be covered in dust, I have determined to allow a 75% abatement of rent to compensate the occupants for the inconvenience caused to them during the repair to the main bathroom. The amount is $13929.23." The second period 1. At [53] to [56] the Magistrate set out evidence from Ms Yamamoto and Mr Aoki detailing the inconvenience suffered during the second period. His Honour recorded that Ms Yamamoto's evidence was that during the work, a significant portion of the apartment floor was covered in plastic, and tools and equipment were left in various areas. The ensuite drawers were left on the floor of the master bedroom, the removed bathroom door was left against a wall in the master bedroom, a significant amount of electricity was consumed, the work was noisy and created a lot of dust, the work was carried out Monday to Saturday between 8.00 am and 4.00 pm (creating a disturbance since Mr Aoki works from home and their daughter was on school holidays for two weeks) and that tiles stored on the balcony prevented its use for three days. His Honour also set out a portion of Ms Yamamoto's cross examination in which she detailed having to clean her bedroom "very regularly" and discussed the extent of the dust, as well as a portion of Mr Aoki's cross examination in which he said that the dust was regularly "everywhere" and that there were "Always some chemical smells, always I have to concern about my daughter. It's a lot of uncomfortable situation". At [56] his Honour referred to photographs taken by Ms Gunarajan of the condition of the apartment in 2012. 2. The Magistrate at [57] made a finding that: "[57] The work on the ensuite commenced on 02/07/2012 and was completed on 09/09/2012. The period is 69 days. The daily rental is $179.87. The rental for the period is $12,411.50." 1. For the second period, it is apparent that rent abatement of 100% was awarded. The grounds of appeal 1. Mr Wang appealed from the decision of the Magistrate in relation to quantum and on costs on 13 grounds. However, these were reduced at the hearing and can be summarised as three main grounds. They are: 1. That his Honour's assessment of abatement was unsustainable on the evidence, and that he failed to give adequate reasons for his assessment of 75% for the first period and 100% for the second period; 2. That his Honour denied Mr Wang procedural fairness by awarding damages for a period of time not claimed by Ms Yamamoto; and 3. That his Honour erred in his approach to costs. (1) Assessment of rent abatement 1. Mr Wang's submission was that the assessment of abatement of rent by the Magistrate was erroneous due to a failure to give sufficient reasons. Senior counsel for Mr Wang submitted that where a fraudulent misrepresentation induces a contract under which property is acquired, the well established prima facie measure of loss is the difference between the price paid and the value of what is acquired at the time of the transaction: see Potts v Miller [1940] 64 CLR 282 at 297. So far as the award of 75% abatement for the first period is concerned, Mr Wang argued that the Magistrate did not set out any principled basis for that award, nor did he refer to any specific evidence in relation to this period with the exception of one email from Mr Aoki expressing "annoyance". In particular, Mr Wang argued that the Magistrate failed to make a finding as to how the figure of 75% was calculated taking into account the evidence, and that this constitutes a failure to give reasons in relation to a critical aspect of the case, referring to Keith v Gal [2013] NSWCA 339 at [109]-[110]. 2. So far as the award of 100% abatement for the second period is concerned, senior counsel for Mr Wang submitted that there was no consideration at all in the Magistrate's reasons as to how a finding of 100% abatement could be maintained, and that awarding 100% abatement shows that the wrong approach was adopted because Ms Yamamoto derived some benefit from the tenancy such as the use of the car spaces. Mr Wang submitted that the Magistrate made no reference to any evidence nor did he state the basis for that finding. 3. Senior counsel for Ms Yamamoto submitted that the Magistrate's reasons were perfectly adequate and unexceptional. Ms Yamamoto argued that since the Magistrate's assessment of the award of abatement was a finding of fact, his Honour was only required to give rudimentary reasons. 4. Further, Ms Yamamoto argued that since the determination of abatement percentages is a subjective determination of what is "fair and reasonable", there were really no further reasons the Magistrate could give beyond doing what he did in stating the abatement figures he considered fair and reasonable. Senior counsel for Ms Yamamoto submitted that Mr Wang's challenge to the Magistrate's reasoning amounted to an appeal in relation to findings of fact, which is impermissible, rather than a genuine complaint about any failing by the Magistrate to state his thought processes to the extent required by law. 5. The Magistrate considered the awarding of damages and rent abatement when assessing damages for fraudulent misrepresentation. The Magistrate at [46] referred to Halsbury's Laws of Australia at [65-2165] where the learned author states: "[65-2165] Measure of damages The measure of damages for fraud or deceit is the sum which will compensate the plaintiff for the prejudice or disadvantage suffered as a result of having altered his or her position under the inducement of the fraudulent representation. The object of the award of damages is to place the plaintiff in the position which would have obtained had the fraud not been committed. It may include compensation for consequential losses directly resulting from the fraud." 1. The award of damages however was not just for fraudulent misrepresentation but for the rental reduction Mr Wang should have allowed Ms Yamamoto for breach of a term of the rental agreement. Throughout the hearing, both parties made submissions that the quantum of damages should be assessed on the basis of what was a "fair and reasonable" amount in the circumstances. This reflects the general principles for damages awarded for discomfort and loss of enjoyment arising out of a breach of a contract established in Baltic Shipping Company v Dillon [1993] HCA 4; (1993) 176 CLR 344. In Baltic Shipping, the High Court found that the general principles for damages for breach of contract, being that a successful plaintiff is entitled to the monetary sum which provides reasonable compensation for the breach without imposing a liability upon the other party exceeding that which he could fairly be regarded as having contemplated and been willing to accept, also apply to the recovery for damages for distress and disappointment arising out of a breach of contract (Deane and Dawson JJ at [39]). 2. It is not in dispute that a Magistrate is obliged to provide adequate reasons and not to do so constitutes an error of law: see Stoker v Adecco Gemvale Constructions Pty Ltd [2004] NSWCA 449 at [41] per Santow JA. 3. In Beale v Government Insurance Office of NSW (1997) 48 NSWLR 340 Meagher JA at 422 stated: "A failure to provide sufficient reasons can and often does lead to a real sense of grievance that a party does not know or understand why the decision was made: Re Poyser and Mills Arbitration [1964] 2 QB 467 at 478. This court has previously accepted the proposition that a judge is bound to expose his reasoning in sufficient detail to enable a losing party to understand why it lost". 1. In Stoker, Santow JA at [41] said that "It is sufficient if the reasons adequately reveal the basis of the decision, expressing the specific findings that are critical to the determination of the proceedings." However, "the extent and the content of reasons will depend upon the particular case under consideration and the matters in issue. While a judge is not obliged to spell out every detail of the process of reasoning to a finding, it is essential to expose the reasons for resolving a point critical to the contest between the parties": see Pollard v RRR Corporation Pty Limited [2009] NSWCA 110, McColl JA at [58] (with whom Ipp JA and Bryson AJA agreed). 2. In Soulemezis v Dudley (Holdings) Pty Limited (1987) NSWLR 247, McHugh J at 281 stated: "In a case where a right of appeal is given only in respect of a question of law, different considerations apply from the case where there is a full appeal. An ultimate finding of fact, which is not subject to appeal and which is in no way dependent upon the application of a legal standard, can be treated less elaborately than an issue involving a question of mixed fact and law. If no right of appeal is given against findings of fact, a failure to state the basis of even a crucial finding of fact, if it involves no legal standard, will only constitute an error of law if the failure can be characterised as a breach of the principle that justice must be seen to be done. If, for example, the only issue before a court is whether the plaintiff sustained injury by falling over, a simple finding that he fell or sustained injury would be enough if the decision simply turned on the plaintiff's credibility. But, if, in addition to the issue of credibility, other matters were relied on as going to the probability or improbability of the plaintiff's case, such a simple finding would not be enough." 1. The Magistrate undertook the task he was required to do in assessing what was a fair and reasonable rental rebate while the repairs were being carried out in the apartment. He took into account the evidence given by Mr Aoki concerning the stain and dampness on the carpet prior to the work commencing. In the earlier period he assessed the inconvenience caused to Ms Yamamoto due to the leak in the bathroom. 2. So far as the determination of the 75% abatement for the first period is concerned, the Magistrate's reasoning process is based on his determination of "the evidence of Ms Yamamoto regarding the inconvenience that occurred … presuming that the inconvenience was similar to that experienced when the main bathroom was repaired", as well as to the email from Mr Aoki expressing annoyance with the work. 3. So far as the award of the 100% rent abatement for the second period is concerned, it is my view that the Magistrate has adequately revealed the basis of his decision by setting out the evidence of the disadvantage suffered by Ms Yamamoto from paragraphs [53] to [56] of his decision and arriving at the figure of $12,411.50. 4. On the facts, it was open to the Magistrate to arrive at the figures that he did in relation to assessing what was a fair and reasonable amount. In my view, the Magistrate's reasons were adequate. They were not "so inadequate as to constitute a miscarriage of justice": see Beale at 444. There is no error of law. 5. Accordingly, this ground of appeal fails. (2) Procedural fairness 1. Senior counsel for Mr Wang submitted that Mr Wang was denied procedural fairness when the Magistrate awarded damages for a period of time not claimed by Ms Yamamoto at the hearing. During opening addresses at the Local Court hearing, after confirming that Mr Wang's liability to pay some abatement was no longer in issue, the Magistrate asked the parties to identify the main issues for trial. The parties' legal representatives stated (T5.21 - 9 April 2014): "BOYLE: Your Honour, the one issue in the case is the amount of abatement. We agree, under the lease and under the Residential Tenancies Act that there has to be an abatement because-- HIS HONOUR: Yes, all right. So what is the actual point then that you don't agree about? BOYLE: We have made offers, obviously, on and off the record throughout the whole period of time, including during the period when the work was being done and we can't reach agreement. … HIS HONOUR: You're willing to pay 23 weeks, are you? BOYLE: At a certain amount. The-- HIS HONOUR: But not the full amount? BOYLE: Not the full amount and, really, your Honour, that is the only issue in the case as far as the defendant is concerned. We have an expert report which has been-- HIS HONOUR: So liability is not in issue; it's a question of the damages? BOYLE: The amount of the abatement, that is correct-- HIS HONOUR: Yes, okay. BOYLE: ---your Honour, and contrary to what my friend was saying, it is restricted to-- … BOYLE: …I'm really just referring to the statement of claim though, that it is restricted to this 23 week period, what the claim is about, and in the particulars they say that the $31,000 amount claimed is, in fact, the full amount of the rent for that 23 week period; so it is only the 23 week period, in our submission that the case is about-- HIS HONOUR: All right. Okay. BOYLE: --and what is a fair and reasonable amount of reduction on the rent, due to the amount of inconvenience that was incurred. That's the issue in the case, Your Honour. Thank you. HIS HONOUR: Now, Mr Oliveri, do you agree that you're seeking a rebate for or the abatement for 23 weeks? OLIVERI: Well, I think it was 26 but it probably is 23. I thought it was – I think it is actually 23, your Honour, when I look at it. Is that right? HIS HONOUR: Well, if it's 23 you're only talking about-- OLIVERI: 26 – I'm told it's 26 but I don't think that your Honour will need to worry about those three weeks, simply because – my client says it's 26 but if it's just a matter of calculating-- HIS HONOUR: No, all right. So if liability is not the issue and the amount of weeks is not the issue, the only issue is the amount that should be the extent of the damages; do you agree? OLIVERI: Yes. It's whether or not my client is entitled to a rebate for half. … HIS HONOUR: Your only issue is how much she should get, so maybe we could just concentrate on that issue. OLIVERI: Yes, that's right. … OLIVERI: That's what this case is about, your Honour." 1. Senior counsel for Mr Wang submitted that the earlier period was not pleaded and that the above discussion confined the claim to only the first and second periods. 2. Senior counsel for Ms Yamamoto submitted that the earlier period of time was pleaded and that no agreement was reached to limit the claim for damages to only the first and second periods. Ms Yamamoto's position about the discussion at the commencement of the hearing was that it confirmed which periods were relevant for the assessment of rent abatement when the apartment was uninhabitable, but that the condition of the unit during the entire tenancy was a topic relevant throughout the hearing. 3. In Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658 at 664, the High Court explored the circumstances where a case can be held to have been run outside of the pleadings: "Pleadings and particulars have a number of functions: they furnish a statement of the case sufficiently clear to allow the other party a fair opportunity to meet it; they define the issues for decision in the litigation and thereby enable the relevance and admissibility of evidence to be determined at the trial; and they give a defendant an understanding of the plaintiff's claim in aid of the defendant's right to make a payment into court. Apart from cases where the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial, the relief which may be granted to a party must be founded on pleadings. But where there is no departure during the trial from the pleaded cause of action, a disconformity between the evidence and particulars earlier furnished will not disentitle a party to a verdict based upon the evidence. Particulars may be amended after the evidence in a trial has closed, though a failure to amend particulars to accord precisely with the facts which have emerged in the course of evidence does not necessarily preclude a plaintiff from seeking a verdict on the cause of action alleged in reliance upon the facts actually established by the evidence." 1. Contrary to the submissions of Mr Wang, a claim for damages was pleaded for the earlier period. It was a claim for inconvenience and diminishment of enjoyment of the apartment resulting from the leak in the bathroom ([10] and [11] of the statement of claim). This claim was denied in the defence at paragraph [8]. 2. The issue for this Court is to determine whether the parties chose to disregard the pleadings and limit the claim to only the first and second periods at trial. 3. In opening addresses, the issues in dispute appear to have been confined to the amount of rent abatement that should be allowed for the first and second periods. However, there was no express abandonment nor a withdrawal of the claim for rent abatement for the earlier period. 4. I accept that the evidence during the trial was primarily directed to the condition of the apartment during the first and second periods. However, Mr Aoki was asked questions about the state of the apartment during the earlier period. Mr Aoki was cross examined about the extent of the stain and dampness on the carpet before the works commenced (from T37.48) and about the condition and liveability of the flat in between the two time periods. He gave evidence (T46.30-35, T47.30-36 - 9 April 2014): "Q. So there were two time periods where the work was carried out? A. Yes. Q. I put it to you that, apart from those two time periods, the flat was perfectly operational with two bedrooms all the rest of the time. A. No. … Q. Apart from the times when work was being carried out during the two work periods, you continued living in the premises that whole time? A. Yes, we did. Q. When the work was not being done, there was nothing wrong with the premises, was there? A. Many thing was wrong. As I said, door was leaning against the wall." 1. Both parties in their closing addresses referred to the state of the apartment during the first and second periods. Mr Oliveri stated (from T25.23): "So there's no doubt that as soon as they've gone in, they had leaky bathrooms. So there's got to be a reduction for that. Amenable reduction according to the so-called expert, but still there's got to be some reduction. The plaintiff's didn't claim a reduction for that and then the rest of the term – which there is some dispute as to whether it's 23 or 26 weeks – well I've calculated the days and there is no dispute about the date of the commencement and the date of completing the work in respect of each bathroom. What the dispute is about is how long that was. 1. In further submissions, Mr Boyle stated (T30.36-39 - 9 April 2014): "…your Honour, the assessment issue – I remind your Honour there's no claim for anything outside the 23 week period that's been pleaded. There's no claim for anything outside that and not even a mention of anything outside that time." 1. In closing submissions, Mr Oliveri did address the earlier period, saying "but still there's got to be some reduction." 2. The discussion about the two periods during opening addresses seems to limit Ms Yamamoto's claim to the two periods of time, but, as I have stated, the claim for the earlier period was not expressly withdrawn or abandoned. During the trial, some evidence was given to the condition of the apartment during the earlier period by Mr Aoki in relation to the dampness and stains on the carpet and in closing submissions, Mr Oliveri did address the earlier period. 3. The claim for the damage in relation to the earlier period was pleaded, evidence was elucidated at trial and Mr Oliveri referred to it in closing submissions. It is my view that the claim for damages in relation to the earlier period remained in issue at trial. In these circumstances, Mr Wang was not denied procedural fairness when the Magistrate proceeded to award an amount of damages for the earlier period. There is no error of law. This ground of appeal fails. The result is that this appeal is dismissed. Costs - whether leave to appeal should be granted 1. Leave to appeal is required under s 40(2) of the Local Court Act on a question of costs. 2. In Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164, the Court of Appeal set out the principles to be considered in deciding whether leave to appeal should be granted. At [32], [33] and [35] Basten JA stated: "[32] The principles governing cases such as these have recently been restated in Zelden v Sewell; Henamast Pty Ltd v Sewell [2011] NSWCA 56. As Campbell JA noted (with the agreement of Young JA) at [22]: 'It is of some importance to reiterate the principles that were stated in Carolan v AMF Bowling Pty Limited [1995] NSWCA 69, where Sheller JA said that an applicant for leave must demonstrate something more than that the trial judge was arguably wrong in the conclusion arrived at. Cole JA relied on a principle that where small claims are involved, it is important that there be early finality in determination of litigation, otherwise the costs that will be involved are likely to swamp the money sum involved in the dispute.' [33] In Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 Campbell JA, with the agreement of Young and Meagher JJA, expanded on his summary of Carolan, noting that Kirby P had recognised "that ordinarily it was appropriate to grant leave to appeal only concerning matters that involve issues of principle, questions of general public importance or an injustice which is reasonably clear, in the sense of going beyond [what is] merely arguable": at [46]. … [35] In Coulter v The Queen [1988] HCA 3; 164 CLR 350, dealing with a challenge to a refusal of the South Australian Full Court to grant leave to appeal in a criminal matter, the majority noted that a leave requirement was a preliminary procedure 'recognised by the legislature as a means of enabling the court to control in some measure the volume of appellate work requiring its attention': at 356 (Mason CJ, Wilson and Brennan JJ). That statement is clearly applicable to civil, as well as criminal, appellate jurisdiction." 1. On 8 October 2014, a separate decision on costs was handed down by the Magistrate. His Honour ordered Mr Wang to pay Ms Yamamoto's costs on an ordinary basis up until 3 February 2014 and on an indemnity basis thereafter. There is nothing out of the ordinary in awarding costs to a successful party including on an indemnity basis from a particular date. In the exercise of my discretion, I would refuse leave to appeal. 2. If I am wrong, I will consider whether the Magistrate erred in making the award for costs. This ground concerns the exercise of the Magistrate's discretion and accordingly, error must be demonstrated in the sense explained in House v The King [1936] HCA 40; (1936) 55 CLR 499. Such error for example may be the application of a wrong principle, mistaking facts or taking irrelevant considerations into account. 3. Senior counsel for Mr Wang submitted that in awarding indemnity costs in favour of Ms Yamamoto, the Magistrate took into account several irrelevant considerations. Firstly, that having correctly concluded that the offer was neither expressed to be a valid offer of compromise made pursuant to the UCPR or a Calderbank offer, the Magistrate erred in concluding that it was unreasonable to reject that offer. Secondly, Mr Wang said the fact that the proceedings were delayed was irrelevant and thirdly, and most critically, Mr Wang argued that the Magistrate erred by taking into account the lack of prospects of success of Mr Wang. He submitted that this was because the case was never conducted on the basis that Mr Wang could win the case, and was only ever an assessment of quantum of damages. Accordingly, Mr Wang submitted that this was an irrelevant consideration. 4. Ms Yamamoto argued that the Magistrate did not err in taking into account the offer to settle. Senior counsel for Ms Yamamoto's submission was that a non-complying offer of compromise is something that a court can, and very frequently does, take into account when determining costs, and that there is no error of law in doing so. Further, senior counsel for Ms Yamamoto argued that it was hardly unreasonable for the Magistrate to think that Mr Wang had little chance of success even in relation to the question of damages. Ms Yamamoto further submitted that the costs reasons were more than adequate, and that costs, being a discretionary matter, should not be lightly interfered with. Costs generally 1. The starting point is s 98 of the Civil Procedure Act 2005 (NSW), which relevantly reads: "98 Courts powers as to costs (1) Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis. (2) Subject to rules of court and to this or any other Act, a party to proceedings may not recover costs from any other party otherwise than pursuant to an order of the court. …" 1. UCPR 42.1 and 42.2 read: "42.1 General rule that costs follow the event Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs. 42.2 General rule as to assessment of costs Unless the court orders otherwise or these rules otherwise provide, costs payable to a person under an order of the court or these rules are to be assessed on the ordinary basis." 1. The Magistrate, in his costs decision, took into account that on 3 February 2014, Mr Wang rejected an offer made by Ms Yamamoto to settle the proceedings for $25,000 inclusive of costs. His Honour indicated that the letter was a non-complying offer of compromise and it did not constitute a Calderbank offer. His Honour stated that he would not be entitled to take it into account unless there was something in the terms of the offer, or in the surrounding circumstances, to indicate that it was otherwise proposed to be relied upon for the question of costs. The Magistrate at [9] continued: "[9] The judgment sum is substantially greater than the offer, so the offer is not excluded on the grounds that it is inclusive of costs. The letter of 03/02/2014 is 'without prejudice save as to costs' and refers to consent orders/terms of settlement, so to that extent the letter implies that the letter is to be relied upon on the question of costs. I determine that the letter may be considered on the question of costs." 1. The Magistrate then considered whether it was unreasonable for Mr Wang to reject the offer. He outlined the factors to be considered as set out in Hazeldene's Chicken Farm Pty Ltd v Victorian Work Cover Authority (No 2) (2005) 13 VR 435; [2005] VSCA 298: (i) the stage of the proceedings, (ii) the time provided for acceptance, (iii) the extent of the compromise, (iv) the offeree's prospects of success, and (v) the clarity of the offer, and whether or not it conveyed an intention to rely on the offer in an application for indemnity costs. At [11] the Magistrate stated: "[11] The stage of proceedings was that the court had made orders for the plaintiff's evidence to be served by 28/01/2014, and the defendants' evidence to be served on 25/02/2014. The letter was served after the plaintiff was to serve its evidence, so the defendant knew the case it had to meet. The time provided for acceptance was 14 days, which is sufficient time for the defendant to consider the offer. The offeree had little prospect of success because the emails available to the defendant indicate that the report made by Ms Gunarajan as to the condition of the ensuite was false. The offer is clear; however it does not convey an intention to rely on the offer in an application for indemnity costs. [12] The defendant caused delay in the proceedings due to the inadmissible evidence contained in the affidavit of Ms Gunarajan. [13] In all the circumstances, particularly the lack of prospects of the defendant succeeding due to information available to the defendant, the delays occasioned due to the inadmissible evidence contained in the affidavit of Ms Gunarajan, and the fact that the defendant had the opportunity had the opportunity to settle the matter to reduce costs, that it is appropriate that the defendant pay indemnity costs from 04/02/2014." 1. In my view, the Magistrate, in the exercise of his discretion to award costs, was entitled to take into consideration the factors of the offer, the chances of success on quantum and delay. There is no error of the House v King kind. There is no error of law. This ground of appeal would also fail. The result is that leave to appeal in the costs decision is refused and that the appeal in relation to costs is dismissed. 2. Costs are discretionary. Costs usually follow the event. The plaintiffs are to pay the defendant's costs on an ordinary basis as agreed or assessed. 3. I might add, it is surprising that there is an appeal over such a modest sum. Liability was not in issue, so the Court's task was to assess quantum. Clearly Ms Yamamoto had been inconvenienced and was entitled to rent abatement. The amount of costs incurred by both parties in the Local Court and this Court far outweigh the judgment sum. The parties were encouraged to settle in the Local Court and this Court but chose not to do so. 4. The Court orders that: (1) Leave to appeal in relation to the decision dated 8 October 2014 is refused. (2) The appeals are dismissed. (3) The further amended summons filed 25 February 2015 is dismissed. (4) The decisions of his Honour Magistrate Bradd dated 4 September 2014 and 8 October 2014 are affirmed. (5) The plaintiffs are to pay the defendant's costs on an ordinary basis as agreed or assessed. ********** 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 2015