Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Sarraf and Ors v Con Zorba t/as ACP Distributors [2016] NSWCATCD 42 Hearing dates: Application considered on the papers Decision date: 09 May 2016 Jurisdiction: Consumer and Commercial Division Before: J A Ringrose, General Member Decision: 1. The applicant is to pay the respondent's costs as agreed or assessed on the basis set out in the costs legislation (as defined in s 3A of the Legal Profession Uniform Law Application Act 2014). Catchwords: Order for costs meaning of "special circumstances warranting an order for costs". Legislation Cited: Civil and Administrative Tribunal Act 2013 (NSW) s 60 Civil and Administrative Tribunal Regulations 2014 Cases Cited: Terrence and Lindy Eve v John Boyd t/as Kalana Homes [2014] NSWCATCD 152 Texts Cited: James and Ors v Surf Road Nominees Pty Ltd and Ors [2005] NSWCA 296 Hughes v Western Australia Cricket Association [1986] ATPR 40.748 Cheal Industries v Fitzpatrick [2012] NSWSC 932 Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81 Mergerditchian v Kurmond Homes Pty Ltd [2014] NSWCATAP 120 CPD Holdings Pty Ltd t/as The Bathroom Exchange v Baguley [2015] NSWCATAP 21 Lataudis v Casey [1990] HCA 59 McHugh Kelly v Noumenom Pty Ltd [1988] 47 SASR 182 Doula Spirit Pty Ltd v Andrew Argyray [2014] NSWCATCD 227 Category: Costs Parties: Joseph Sarraf, Jamil Sarraf, Vilma Sarraf and Fouad Sarraf (applicants) Con Zorba t/as ACP Distributors (respondent) Representation: Solicitors: Nexus Lawyers - for the applicants Peter Evans & Associates - for the respondent File Number(s): HB 13/55731 Publication restriction: Unrestricted reasons for decision 1. The applicants filed an application on 25 October 2013 claiming a total sum of $83,360.42 for rectification of defective tiling works undertaken at a property at [*****]The Hill. The works were undertaken at a total cost of $880.00 although the parties agreed for the purposes of the proceedings that the work had a value more than $1,000.00. 2. The application was heard on 19 June 2015 and 16 September 2015 and following the receipt of written submissions from both parties a principal judgment was handed down on 20 January 2016 but amended on 2 February 2016. 3. That decision required the respondent to pay the applicants the sum of $1,057.40 within 60 days of the date of the orders and also directed that the parties file written submissions relating to costs with the last of those submissions to be provided within 30 days of the date of the amended orders. 4. The works undertaken by the respondent were commenced in 2011 and the substantial issue between the parties related to the condition of the tiles which were apparently initially laid in 2005, when the respondent commenced his works. It was noted that the applicants purchased the properties in June 2009. 5. The Tribunal determined on the evidence that a large number of claims made by the applicants had not been made out and that the respondent had been substantially successful in the overall claim. 6. As the initial claim exceeded $80,000.00 solicitors had been involved for both parties since June of 2014 when it was agreed that both parties could have the right to legal representation before the Tribunal. RESPONDENT'S SUBMISSIONS 1. Mr Bilinsky, on behalf of the respondent submitted that it was appropriate for an order for costs to be made as the claim was initially for a significant amount of money in excess of $80,000.00. He pointed out that leave was granted to both parties to be legally represented in June of 2014 as it was necessary for points of claim and points of defence to be filed along with a Scott Schedule and a response thereto. 2. It was conceded that the starting point in relation to costs was that each party was to bear their own costs and it was encumbent in the present circumstances for a party seeking costs to show "special circumstances which might warrant an award of costs." 3. Reference was then made to the relevant parts of s 60(3) of the Act and it was submitted that the matters representing special circumstances would include; (c) relevant strengths of the claims made by each of the parties, including whether a party had made a claim that had no tenable basis in fact or law. (d) the nature and complexity of the proceedings. It was further argued that the proceedings could have been regarded as misconceived or lacking in substance within the meaning of s 60(3)(e) of the Act. 1. It was argued that it would be an unjust situation if there was no award for costs in the circumstances where the respondent had incurred significant costs resisting some complex claims against him and in circumstances where he had ultimately been substantially successful. 2. Reference was then made to an offer of compromise under which the respondent offered to pay the applicants $5,000.00 plus costs. That offer was served under cover of a letter dated 11 July 2014 and the offer required a response within 28 days of that date. Mr Bilinsky submitted that the respondent should be entitled to an order for indemnity costs from 11 July 2014 and that this order would be possible having regard to the provisions of s 60(4)(b) of the Act. A copy of the offer, together with the letter dated 14 July 2014 and the email serving the documents on that date to Jamil Sarraf were included in the respondent's material. APPLICANT'S SUBMISSIONS 1. Mr Morrissey, on behalf of the applicants provided submissions dated 8 February 2016 seeking an order that the respondent pay the applicant's costs as agreed or assessed or in the alternative an order that each party bear their own costs. 2. He noted that the applicants commenced proceedings seeking costs associated with the rectification of defective tiles and hand rails. They based their claims on quotes received from builders to replace the tiles and hand rails on advice of their expert. He argued that the respondents had not been "substantially successful" in the proceedings and pointed out that the amounts which had been ordered to be paid were never admitted in the respondent's points of defence and were disputed throughout the proceedings. 3. Mr Morrissey referred to s 60 of the New South Wales Civil and Administrative Tribunal Act and suggested that in the absence of special circumstances each party would be required to bear their own costs. He argued that no special circumstances as outlined in the subs (3) had been made out and that the Tribunal should follow the general principal that "costs follow the event" and award the applicant their costs of the proceedings. 4. He addressed the submission that the proceedings be regarded as "frivolous or vexatious or misconceived or lacking in substance within the meaning of s 60(3)(e)" and stated that this section required very high threshold which had not been met in the present circumstances. He argued that the applicants had been successful in being awarded damages. 5. In response to the offer of compromise dated 11 July 2014 it was submitted that the Tribunal should not conclude that failure to accept the offer of compromise from the respondent was unreasonable for the following reasons; 1. The Tribunal is not bound by the civil procedure rules. 2. (b) Based on the evidence available at the time the applicants could not properly consider and assess the offer. 3. (c) The applicants were not aware that the offer of compromise would be relied upon to seek costs on an indemnity basis. It was pointed out that the Tribunal does not have jurisdiction to accept a notice of acceptance from the applicants as the civil procedure rules do not apply to the Tribunal and an offer of compromise as made under those rules may have no application. (See Terrence and Lindy Eve v John Boyd t/as Kalana Homes [2014] NSWCATCD 152) where it was submitted that the respondent should be ordered to pay the applicant's costs or that each party should bear their own costs. RESPONDENT'S SUBMISSIONS IN REPLY 1. Mr Bilinsky referred initially to the provisions of r 38 of the Civil and Administrative Tribunal Rules 2014 and submitted that this would entitle the Tribunal to order costs in the absence of special circumstances where an amount in dispute or an issue in the proceedings exceeded $30,000.00. Mr Bilinksy argued that the initial claims in this matter exceeded $80,000.00 and the provisions of r 38 could be relied upon for that purpose. 2. In relation to the issue of apportionment of costs he noted that the Tribunal had a wide discretion in relation to the awarding of costs having regard to the provisions of s 60(4) of the Act. He referred to a decision of the Court of Appeal in James and Ors v Surf Road Nominees Pty Ltd and Ors [2005] NSWCA 296 where the question of costs awarded in cases which involved multiple issues was considered. That decision related to part 52A r 11 of the Supreme Court rules. Reference was also made to a decision of Toohuyj in Hughes v Western Australia Cricket Association [1986] ATPR 40.748 where the Court held; (i) ordinarily costs will follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. (ii) where a litigant has succeeded upon a portion of his claim, circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed. (iii) the successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the party's costs of them. In this sense issue does not mean a prescribed precise issue in the technical sense but any disputed question of fact or law. 1. It was pointed out that the Tribunal did not accept the evidence of Mr Sarraf that the tiles were in good condition at the time when the respondent attended his property to carry out the rectification work. It was submitted that this was the key issue which impacted on the substantial part of the applicants' claim for damages. 2. It was argued further that the making of an offer of $5,000.00 plus costs early in the course of the litigation could be regarded as a special circumstance upon which it held all costs could be made in favour of the respondent. 3. It was submitted further that on the issue of proportionality the applicants had incurred costs that were totally disproportionate to the outcome that they had obtained and accordingly the respondent should not be liable for those costs (See Cheal Industries v Fitzpatrick [2012] NSWSC 932). 4. In relation to the offer of compromise, Mr Bilinski on behalf of the respondent agreed that the Tribunal was not bound by the Civil Procedure Rules but noted that there was no prescribed form of an offer in the Tribunal. He pointed out that the offer of compromise served in the present case was not specified as being in accordance with the Civil Procedure Rules and in that instance the decision of Eve v Boyd could be distinguished. DECISION 1. The Civil and Administrative Tribunal Act 2013 provides so far as is relevant; 60 Costs (1) each party to proceedings in the Tribunal is to pay the parties own costs. (2) the Tribunal may award costs in relation to proceedings before it, only if it is satisfied that there are special circumstances warranting an award of costs. (3) in determining whether there are special circumstances warranting an award of costs, the Tribunal may have regard to the following; (a) whether a party has conducted the proceedings in a way that unnecessarily disadvantages another party of the proceedings. (b) whether a party has been reasonable for prolonging unreasonably the time taken to complete proceedings. (c) the relative strengths of the claim made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law. (d) the nature and complexity of the proceedings. (e) whether the proceedings were frivolous or vexatious or otherwise misconceived or lacking in substance. (f) whether a party has refused or failed to comply with the duty imposed by s. 36(3). (g) any other matter that the Tribunal considers relevant. (4) if costs are to be awarded by the Tribunal, the Tribunal may; (a) determine by whom and to what extent costs are to be paid. (b) order costs to be assessed on the basis set out in legislation (as defined in s. 3A of the Legal Profession Uniform Civil Application Act 2014). 1. It is also appropriate to have regard to r 38 of the Civil and Administrative Tribunal Rules 2014 which provides; 38 Costs in Consumer and Commercial Division of the Tribunal (1) this rule applies to proceedings for the exercise of functions of the Tribunal that are allocated to the Consumer and Commercial Division of the Tribunal. (2) despite s. 60 of the Act the Tribunal may award costs in proceedings to which this rule applies even in the absence of special circumstances warranting such an award if; (a) the amount claimed or in dispute in the proceedings is more than $10,000.00 but not more than $30,000.00 and the Tribunal has made an order under cl 10(2) of Sch 4 to the Act in relation to the proceedings or; (b) the amount claimed or in dispute in the proceedings is more than $30,000.00. It is noted that the respondent relies on this rule in pursuit of his claim as well as the assertion that special circumstances warranting an award of costs apply in the present instance. 1. In Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81 the Court of Appeal held that special circumstances were established if they were out of the ordinary. They did not require to be exceptional or extraordinary. That definition of special circumstances was considered and adopted by the Appeal Panel of the Tribunal in Mergerditchian v Kurmond Homes Pty Ltd [2014] NSWCATAP 120. 2. In CPD Holdings Pty Ltd t/as The Bathroom Exchange v Baguley [2015] NSWCATAP 21 the Appeal Panel, after considering the definitions of special circumstances concluded; 29 consequently I am of the opinion that in order to satisfy the test of "special circumstances" one must find circumstances that are out of the ordinary, but without having to be extraordinary or exceptional and those circumstances would warrant an awarding of costs … 30 each case depends upon its own particular facts … 1. In relation to the issue of special circumstances, the respondent, who seeks costs, relies on the following matters in s 60(3); (c) the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law and, (d) the nature and complexity of the proceedings. It is also suggested that the proceedings may have been misconceived or lacking in substance which would result in another special circumstance in accordance with s 60(3)(e) of the Act. 1. The respondent further contends that an offer to resolve this matter was served on 11 July 2014. That offer was for an amount of $5,000.00 to be paid to the applicant together with costs. A period of 28 days was allowed for consideration of that offer but it was never taken up and the orders of compensation now payable by the respondent to the applicant are substantially less than that offered in July 2014. 2. The respondent points to the leave for legal representation which was granted to both parties in June of 2014 when the amount claimed by the applicant was in the order of $83,000.00. It is contented that this matter was also a special circumstance to be taken into account. 3. The Tribunal has generally accepted that the awarding of costs is compensatory rather than punitive. In Lataudis v Casey [1990] HCA 59 McHugh said; "an order for costs indemnifies the successful party for a party in litigious proceedings in respect of liability for professional fees and out of pocket expenses reasonably incurred in connection with the litigation; Kelly v Noumenom Pty Ltd [1988] 47 SASR 182. The rationale of the order is that it is just and reasonable that a party who has caused the other party to incur the cost of litigation should reimburse that party for the liability incurred. The order is not made to punish the successful party its function is compensatory." Thus in civil proceedings an order may be made and usually will be made even though the unsuccessful party has merely not succeeded or has acted reasonably in commencing the proceedings. On this basis courts have adopted the almost universal practice of awarding costs to a successful party. This situation does not however apply in the Tribunal due to the operation of s 60(1) see Doula Spirit Pty Ltd v Andrew Argyray [2014] NSWCATCD 227. 1. When the provisions of s 60 of the Act are considered it is clear that the general principal relating to each party bearing their own costs is the primary position which in itself is inconsistent with the primary principals adopted by a court where the successful party can have a reasonable expectation of costs following the event. The provisions of s 60(4) enable the Tribunal to determine, without specific rules, the party against who many order for costs is to be made. The provisions of s 60(3) provide a basic guideline upon which the principals of an award of costs can be considered whilst the provisions of r 38 of the Civil and Administrative Tribunal Rules 2014 enable the Tribunal to make an order for costs where an amount in issue exceeds the sum of $30,000.00. 2. In the principal judgment the Tribunal observed that the respondent had been substantially successful in the proceedings. This observation was made without knowledge of any offer of compromise and it was based upon the premise that the respondent was required to oppose a claim in the order of $83,000.00 based upon a need to undertake extensive work to rectify tiling and hand rails. The applicant succeeded to a very limited extent and only in relation to rectification work which was in general conceded by the respondent's expert as being required. The cost of that work was ultimately the only compensation ordered to be paid by the respondent. The principal judgement indicates clearly that the only claim upon which the applicants succeeded related to completion of expansion joints involving rectification which both experts agreed to be necessary (see paragraph 48). Whilst there was a variation between the costing of Mr Shepherd on behalf of the applicants and Mr Barnett on behalf of the respondent, the amount ultimately ordered to be paid represented the assessed cost of that rectification together with a builder's margin and GST. This cost was less than that calculated by Mr Shepherd on behalf of the applicants and more than that calculated by Mr Barnett on behalf of the respondent. The Tribunal found that none of the other amounts claimed by the applicants had been established on the totality of the evidence. 3. In such circumstances the respondent was substantially successful on the whole of the claim and it is appropriate to consider whether circumstances exist under which the respondents should have an order for costs. The power to award costs to either party clearly exists within s 60(4) of the Act. The provisions of r 38 of the Civil and Administrative Tribunal Rules would enable an order for costs in the absence of special circumstances as it is clear that the amount in dispute between the parties clearly exceeded $30,000.00 at the time when the claim was filed and at all relevant times up until the matter was finally determined. It could be said that the respondent would in any event be entitled to an order for costs without proof of special circumstances on that basis alone. 4. In addressing the special circumstances that may be relevant in the present case it is appropriate to note that the amount initially claimed and the potential complexity of the case warranted an order that each party be legally represented as and from June 2014. It is clear that both parties were legally represented after that time. 5. The applicants have substantially failed to establish the claim and the principals relating to the awarding of costs within the court structure as enunciated in Lataudis v Casey (Supra) which were applied and approved by the Tribunal in Doula Spirit Pty Ltd v Andrew Argyray (Supra) are therefore to be considered. 6. The respondent made an early offer to compromise and resolve this matter in July 2014. It is clear that he has incurred substantial costs since that date and it would in my view be inappropriate that he be required to pay those costs in addition to any monies which were ordered to be paid to the applicants. Legal representation was granted to both parties in June of 2014 and it would appear that solicitors have been involved for both parties since that time. It follows, having regard to the circumstances outlined above that the applicants should pay the respondent's costs as agreed or as assessed in accordance with the Legal Profession Uniform Law Application Act 2014 on a party party basis. 7. The Tribunal has given consideration to an award for indemnity costs from a period of 28 from the time the offer of compromise expired, however it has been recognised within the Tribunal that there is no provision for the use of an offer of compromise as referred to in the Uniform Civil Procedure Rules (see Terence Eve and Lindy Eve v John Boyd t/as Kalana Homes [2014] NSWCATCD 152) and the circumstances of the present case do not in my view justify the award of indemnity costs particularly because; 1. (i) The offer of compromise was made at the time to one of the parties in person rather than the parties through their solicitor (whose identity may not have even been known at that stage). 2. (ii) In the circumstances the parties in person or possibly their solicitors may not have appreciated that the failure to respond favourably to the offer of compromise would have given rise to an application for indemnity costs. 3. (iii) The respondent was not totally successful in the claim although he did succeed to an extent better than the offer he had made. 1. It is appropriate to order that the applicants pay the respondent's costs as agreed or as assessed in accordance with the provisions of s 60(4) of the Act. J A Ringrose General Member Civil and Administrative Tribunal of New South Wales 9 May 2016 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: 06 July 2016