Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Sunrise Pools Australia Pty Ltd v Gregory [2018] NSWCATAP 232 Hearing dates: 4 June 2018 Date of orders: 04 October 2018 Decision date: 04 October 2018 Jurisdiction: Appeal Panel Before: L Pearson, Principal Member K Ransome, Senior Member Decision: (1) The appeal is dismissed. (2) The appellant is to pay the respondent's costs of the appeal as agreed or assessed. Catchwords: APPEAL – costs – substantive proceedings settled before hearing – discretion to order costs Legislation Cited: Civil and Administrative Tribunal Act 2013 Civil and Administrative Tribunal Rules 2014 Home Building Act 1989 Cases Cited: Antonio v Cubitt's Classic Homes Improvements Pty Limited [2016] NSWCATAP 37 Breen v Clough (No 2) [2018] NSWSC 158 Collins v Urban [2014] NSWCATAP 17 Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 1509 Commonwealth of Australia v Gretton [2008] NSWCA 117 CPD Holdings Pty Ltd v Baguley [2016] NSWCATAP 103 House v The King [1936] HCA 40; 55 CLR 499 Micallef v ICI Australia Operations Pty Ltd [2001] NSWCA 274 Re Minister for Immigration and Ethnic Affairs: Ex Parte Lai Qin (1997) 186 CLR 622 Public Service Board(NSW) v Osmond (1986) 159 CLR 656 Resource Pacific Pty Ltd v Wilkinson [2013] NSWCA 33 Seltsam Pty Limited v Ghaleb [2005] NSWCA 208 Category: Principal judgment Parties: Sunrise Pools Australia Pty Ltd (Appellant) Maxwell and Valerie Gregory (Respondents) Representation: Counsel: DP O'Connor (Appellant) Solicitors: Adams Partners Lawyers (Appellant) Snelgroves Lawyers (Respondent) File Number(s): AP18/15385 Decision under appeal Court or tribunal: Civil and Administrative Tribunal of New South Wales Jurisdiction: Consumer and Commercial Division Date of Decision: 27 February 2018 Before: G Meadows, Senior Member File Number(s): HB 17/03938 reasons for decision Introduction 1. This is an internal appeal under s 80(2) of the Civil and Administrative Tribunal Act 2013 (NCAT Act) against a costs decision made in the Consumer and Commercial Division of the Tribunal on 27 February 2018. 2. For the reasons that follow, we have decided to dismiss the appeal. Background 1. Mr and Mrs Gregory (the homeowners) entered into a contract with Sunrise Pools Australia Pty Ltd (the builder) under which the builder, for a fee, was to remove an existing fibreglass swimming pool and replace it with a new inground concrete pool. The works proceeded but the homeowners were not satisfied and claimed that the new concrete shell of the pool installed by the builder was defective and structurally unsound. The builder disagreed. 2. On 27 January 2017 the homeowners applied to the Tribunal for an order under the Home Building Act 1989 (the HB Act) that the builder rectify the works. The total amount claimed by the homeowners was some $80,000. Consent orders were made by the Tribunal on 6 October 2017 by which the builder, without admission, agreed to demolish and rebuild the pool shell at its cost. These works were subsequently carried out by the builder. 3. Both parties sought an order for costs. Written submissions were provided by the parties and on 27 February 2018 the Senior Member made an order on the papers that the builder pay the homeowners' costs as agreed or assessed. 4. The Senior Member, relying on established authority, concluded that an award of costs could be made in the absence of a hearing on the merits. As the amount claimed in the proceedings was in excess of $30,000, the Senior Member also concluded that an award of costs could be made in the absence of special circumstances in accordance with s 60 of the NCAT Act and r 38 of the Civil and Administrative Tribunal Rules 2014 (NCAT Rules) and that common law principles applied in making a discretionary costs order. 5. The Senior Member referred to Re Minister for Immigration and Ethnic Affairs: Ex Parte Lai Qin (1997) 186 CLR 622 and the Appeal Panel's decision in CPD Holdings Pty Ltd v Baguley [2016] NSWCATAP 103 which applied the principles set out in Lai Qin when dealing with costs in proceedings where there has been no hearing on the merits. The Senior Member cited the two passages from Lai Qin at [6] and [9] that had been extracted in the builder's submissions, in which McHugh J states the general proposition that where there has been no hearing on the merits, if it appears that both parties have acted reasonably in commencing, defending, and conducting the proceedings, "the proper exercise of the costs discretion will usually mean that the court will make no order as to the cost of the proceedings". 6. The Senior Member then cited the intervening two paragraphs, [7] and [8], in which McHugh J identified two circumstances in which a court may make an order for costs even when there has been no hearing on the merits. Those principles are: 1. whether one party acted so unreasonably that the other party should obtain the costs of the action; and 2. whether one party was almost certain to have succeeded if the matter had been fully tried. 1. The Senior Member concluded that neither party acted so unreasonably that the other party should obtain costs. In relation to the second matter, the Senior Member concluded at [42]: [42] …it was clear even prior to the application being lodged that the homeowners would succeed in an order in some form that the swimming pool would be rectified. In my view that is clear from the submissions of both parties in relation to the attempts to resolve the matter prior to commencement. Although it may be true, as the builder submits, that there was no structural defect with the swimming pool (and of course that was not decided), still it was also clear that the builder would be required to perform some work. In my view it follows that the home owners were "almost certain" to have succeeded in a hearing on the merits and on that basis are entitled to an award of costs in their favour. The Appeal 1. The builder lodged the notice of appeal on 21 March 2018, within the 28 day period established by r 25(4) of the NCAT Rules. Amended grounds of appeal were lodged on 3 May 2018. 2. A decision concerning the award of costs is an ancillary decision as defined in s 4 of the NCAT Act, and an internal appeal may be made as of right on a question of law, and otherwise with leave of the Appeal Panel: s 80(2) NCAT Act. It is well settled that an internal appeal lies to the Appeal Panel from a costs decision: Antonio v Cubitt's Classic Homes Improvements Pty Limited [2016] NSWCATAP 37. 3. It is agreed that the grounds of appeal argued by the builder raise questions of law. 4. As the costs order involved the exercise of a discretion given to the Tribunal under s 60 of the NCAT Act, the builder must demonstrate an error in the House v The King sense. Such an error may be demonstrated if the Tribunal acted on a wrong principle, made a material error of fact, failed to have regard to material considerations or reached a conclusion which was, on the facts, "unreasonable or plainly unjust": House v The King [1936] HCA 40; 55 CLR 499 at 505; Micallef v ICI Australia Operations Pty Ltd [2001] NSWCA 274 at [45]. 5. The builder relies on three grounds of appeal: 1. The Senior Member erred in finding that because the builder would be required to perform "some work" that necessarily a costs order would have been awarded to the homeowner had there been a hearing on the merits. 2. The Senior Member failed to give adequate reasons. 3. The Senior Member denied the builder procedural fairness by deciding the question of costs on legal principles that departed from the manner in which the parties had conducted the hearing without giving the parties an opportunity to address the principles which ultimately decided the case. Consideration Finding that builder would be required to perform some work 1. The builder argues that the Senior Member misapplied the second principle in Lai Qin. The builder submits that the findings by the Senior Member set out above that "the homeowners would succeed in an order in some form" and that it was clear that "the builder would be required to perform some work" do not ground a finding that the homeowners were almost certain to have succeeded to an extent that a costs order would necessarily have followed. 2. The builder states that the issue of whether the pool was structurally sound was central to the dispute. The homeowners maintained throughout the proceedings that it was not and argued that demolition was the only available remedy. As noted above, this was opposed by the builder. As stated by the builder, an argument over the correct method of rectification is not an uncommon topic of dispute in home building cases. 3. The builder refers to the statement by the Senior Member that "although it may be true, as the builder submits, there was no structural defect with the swimming pool" and submits the statement amounts to a concession by the Senior Member that the builder may have succeeded on its argument. That being the case, the builder argues the fact that costs were awarded to the homeowners because they were going to "succeed in some form of order" and the builder would be required to perform "some work", even though the homeowners may have lost on their primary contention that the structure should be demolished, is against principle. 4. The builder refers to the well-established principle that, while costs ordinarily follow the event, where a successful party fails on a particular issue, it may be reasonable in the circumstances for it to pay the other party's costs in relation to that issue: Commonwealth of Australia v Gretton [2008] NSWCA 117; Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 1509; Breen v Clough (No 2) [2018] NSWSC 158. 5. In relation to this case, the builder characterises the statements made by the Senior Member as conceding the builder had every chance of winning at hearing on the point of whether the pool was structurally sound. The builder submits that it could therefore have made an application that the homeowners pay the costs of litigating that point. The builder submits that the Senior Member misapplied the principle by failing to consider that, if the homeowner only succeeded on a small part of its claim, costs may not necessarily have followed the event. 6. The homeowners submit that the Senior Member made no error. They state that the Senior Member made his decision on the basis of the evidence he had before him which was the terms of the consent order and the expert evidence provided by the homeowners to the effect that the pool was not constructed in accordance with the design and required removal and replacement. They submit that, in those circumstances, the Senior Member did not err in the House v King sense in his exercise of the discretion to award costs. 7. The builder notes that there was an expert report obtained by the owners from Kneebone and Beratta Consulting in which the engineer found no structural defect. We note that it is apparent from the chronology provided by the builder that this report was obtained by the owners prior to the Tribunal proceedings and it is not clear whether it was relied upon by them once the proceedings commenced. It also appears from the bundle of documents filed in this appeal that the builder did not file its own expert report in the proceedings. 8. We do not agree with the builder's characterisation of the Senior Member's statement concerning whether there was a structural defect as a "concession" by the Senior Member that the builder would have succeeded on this point. The Senior Member specifically pointed out that that issue had not been decided. In our view, he did no more than indicate that, as is the case in any litigation, it was a possibility that the case could have been determined on a basis other than that embodied in the consent orders. However, given the material he had before him, and in particular in the context where the only expert evidence before the Senior Member was the report provided by the homeowners, his statement that the homeowners were "almost certain" to have succeeded in a hearing on the merits was undoubtedly correct. 9. The builder, in effect, is arguing that the Senior Member should have done what the High Court said in Lai Qin cannot be done in making a costs decision where there has been no hearing on the merits, that is, "try a hypothetical action between the parties". It would not have been appropriate for the Senior Member to engage in an analysis of whether the homeowners or the builder would have succeeded or otherwise on individual elements of their claims. The Senior Member, as the homeowners pointed out, made his decision on the basis of the material he had before him. In doing so he made no error. Adequacy of reasons 1. The builder submits that the Senior Member failed to give adequate reasons for his decision as embodied in [42] of the reasons set out above. The builder refers to the Senior Member's statement that the builder would have had to perform "some work" and says the Senior Member found that was the case because "it is clear from the submissions of both parties in relation to attempts to resolve the matter prior to commencement". The builder submits that the reasons do not identify what work would have been required or to which submissions the Senior Member was referring. The builder, in effect, states there were no submissions made about settlement attempts. 2. The builder states that, as a result, it and the Appeal Panel is left somewhat in the dark as to which correspondence or submissions is being referred to in order to establish the basis for the Senior Member's conclusion. Similarly, without some identification of what work the builder would have been required to perform, it is impossible for the Appeal Panel to make any inquiry as to the validity of that finding and what effect that may have had on a hypothetical costs order. 3. The homeowners submit that the consideration and determination of the issues by the Senior Member is considered and carefully crafted which is evident in how he dealt with the facts and the authorities. 4. Section 62(3) of the NCAT Act sets out what is required in a written statement of reasons. The requirements are uncontroversial and reflect the position generally at common law and in other similar statutes. The Tribunal must set out the findings on material questions of fact, referring to the evidence on which those findings were based; the Tribunal's understanding of the applicable law; and the reasoning processes that lead the Tribunal to the conclusions it made. 5. One reason why reasons for a decision are required is so that the findings of fact and legal reasoning of the decision maker at first instance are available to an appellate body by way of written reasons: Public Service Board (NSW) v Osmond (1986) 159 CLR 656; Collins v Urban [2014] NSWCATAP 17. In considering whether inadequate reasons have been provided, however, it is important to understand the nature of the function being exercised and to determine whether the reasons provided have reached a minimum acceptable level to constitute a proper exercise of power: Resource Pacific Pty Ltd v Wilkinson [2013] NSWCA 33 per Basten JA at [48]. 6. While the Senior Member's reasons when he considered whether one party was almost certain to have succeeded if there had been a hearing on the merits, were concise, in our view, they were sufficiently articulated to provide an understanding of the basis upon which the decision had been made. 7. We therefore find that this ground has not been made out. Denial of procedural fairness 1. The builder submits that the Senior Member denied it procedural fairness by deciding the question of costs on legal principles that departed from the manner in which the parties had submitted the issue should be decided. In particular, the builder states that the Senior Member applied the Lai Qin principles as articulated in the two step process set out in Baguley without having received submissions on that approach. The builder argues that the parties should have been advised by the Senior Member that he intended to apply the Baguley approach and invited them to make submissions. 2. The builder submits that, had it had an opportunity to answer the question of whether one party was almost certain to have succeeded if there had been a hearing on the merits, it would have made submissions that it was far from certain that the homeowners would have been successful to the extent that costs would necessarily have followed the event without the possibility of an alternative costs order. 3. The builder referred to the case of Seltsam Pty Limited v Ghaleb [2005] NSWCA 208 as authority for the proposition that, if a judge contemplates determining a case on a basis different to that upon which the parties the conducted the case, he or she must inform the parties of this prospect so they have an opportunity to address any new or changed issues that may arise. The builder states that this principle is applicable to the current case. 4. That case concerned an action for damages for an asbestos related illness suffered by Mr Ghaleb. The proceedings had been commenced against two employers – Seltsam Pty Ltd and Amaca Pty Ltd, a company which had purchased Seltsam's business and continued to employ Mr Ghaleb. Amaca settled with Mr Ghaleb part way through the proceedings and the remainder of the case proceeded on the basis of a) whether Mr Ghaleb suffered from an asbestos related illness and, if he did, b) what damages should Seltsam pay. Both parties conducted their cases on the basis that, if Mr Ghaleb suffered from the illness, there was therefore an issue of apportionment of damages between Seltsam and Amaca. It was accepted by both parties that, if responsibly could be sheeted home to the employers, Amaca was partially liable for the damage caused by Mr Ghaleb's illness. Mr Ghaleb made various concessions at the trial to that effect. 5. The trial judge's findings were that Mr Ghaleb's exposure to asbestos while being employed by Amaca was not causative of his disease and Amaca was not liable for any damage. As a result, the judge held all liability was the responsibility of Seltsam. 6. In finding that Seltsam had been denied procedural fairness, the Court of Appeal stated that the trial judge had gone beyond the case as conducted by the parties. He had ignored what in effect were concessions by Mr Ghaleb and, on material issues, made findings contrary to those concessions. Seltsam therefore had not conducted its case knowing that the judge contemplated making findings relieving Amaca of any liability. This ignorance on the part of Seltsam must inevitably have coloured its approach to the cross-examination of witnesses, the adducing of evidence and the making of submissions. Thus, there was a serious danger that the judge's findings were based on evidence that was not properly tested, or not admitted when it might have been. 7. This is not a case which is on all fours with Seltsam. That was a case which was heard on the merits and where a considerable amount of evidence was adduced. Both parties in that case had conducted the proceedings in accordance with the proposition that liability, if found, should be apportioned between the two employers. It had never been suggested by the judge or anybody else during the trial that there was no liability on the part of Amaca. 8. This matter is about costs and, in particular, if and what costs can or should be awarded in a matter which has not proceeded to a hearing on the merits. Both parties sought their costs and were given an opportunity to make written submissions. They agreed that a decision would be made on the basis of those written submissions without the need for an oral hearing. 9. It is clear that the Senior Member read and understood the submissions being made by each party on the issue of costs. We note that he found some of the authorities referred to by the parties to be of limited assistance as they were concerned with the usual rule for awarding costs. It was the builder who drew the Senior Member's attention to the decision in Lai Qin and in fact attached a copy of the judgment to the submissions for the Senior Member's reference, although it must be said that neither party made extensive submissions in relation to the principles which emerge from that case. In fact, the builder while referring to the first principle enunciated in Lai Qin (whether one party acted so unreasonably that the other party should obtain their costs), did not refer at all to the second principle contained in that case, namely, whether one party was almost certain to have succeeded if the matter had been fully tried. 10. In our view, it is not now open to the builder to argue, because it did not refer to both of the Lai Qin principles in its submissions, the Senior Member denied it procedural fairness by not calling for submissions on the second principle. It was clearly open to the builder, having squarely raised the decision of Lai Qin for consideration, to make submissions on the entirely of the principles enunciated therein, rather than just the first limb. 11. There has been no denial of procedural fairness and this ground of appeal also is not made out. Conclusion 1. We are not satisfied that the appellant has demonstrated any error of law on the part of the Tribunal. 2. We therefore dismiss the appeal. Costs 1. The respondent has sought its costs of the appeal. The applicable costs rule at first instance was r 38 of the NCAT Rules, and there was no dispute that accordingly r 38A of the NCAT Rules applies to the appeal. The appeal is dismissed and the respondent is entitled to its costs of the appeal. Orders 1. The appeal is dismissed. 2. The appellant is to pay the respondent's costs of the appeal as agreed or assessed. ********** 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: 04 October 2018